GenS reported 3QFY20 core net profit of SGD73.2m (from -SGD116.5m QoQ, - 52.9% YoY), bringing 9MFY20 core net profit to SGD9.8m (-98.1% YoY). The results were very much above expectations largely due to higher than expected gaming volumes generated from local gamblers. 9MFY20 EI sum of -SGD72m was stripped off largely comprising of impairments carried out in 2QFY20. We now forecast FY20 to record a net profit of SGD69.9m (from a net loss of -SGD207.5) as we impute higher gaming volumes. Maintain HOLD with a higher TP of SGD0.77.

Quarterly to bi-annual reporting. Pursuant to the amendments to the Listing Rules of the SGX which took effect on 7 Feb 2020, GenS has decided not to continue with quarterly reporting and will instead release financial statements on a half-yearly basis. Nonetheless, GenS has provided a voluntary business update in respect of 3QFY20 which includes only the Revenue, EBITDA, and Net profit/(loss) figures.

Above expectations. GenS reported 3QFY20 core net profit of SGD73.2m (from - SGD116.5m QoQ, -52.9% YoY), bringing 9MFY20 core net profit to SGD9.8m (-98.1% YoY). The results were very much above ours and consensus expectations (of - SGD207.5m and -SGD224.7m, respectively) largely due to higher than expected gaming volumes generated from local gamblers. 9MFY20 EI sum of -SGD72m was stripped off largely comprising of impairments carried out in 2QFY20.

QoQ. A core net profit of SGD73.2m was recorded (from losses of -SGD116.5m) largely due to the loss of operations in 2QFY20 from the Circuit Breaker.

YoY/YTD. Core net profit fell -52.9%/-98.1% to SGD73.2m/SGD9.8m on the back of lower gaming volumes amidst the ongoing pandemic coupled with limited operating capacity.

A much stronger than anticipated recovery. To recap, casino operations were resumed on 1 July albeit with SOPs in place such as a maximum of 3 to 4 players per table (no standing bets allowed), alternating usage of slot machines, and entry to the casino is limited to members only. We are positively surprised by the commendable results as the local gamblers were sufficient to generate such volumes (given RWS’ reliance on international visitors). With regards to Japan, GenS will evaluate the conditions of the RFP and investment environment of the Yokohama IR when the formal bidding process begins and will respond with a proposal if these conditions meet the Group’s investment criteria.

Forecast. We now forecast FY20 to record a net profit of SGD69.9m (from a net loss of -SGD207.5) as we impute higher gaming volumes.

We maintain HOLD with a higher TP of SGD0.77 (from SGD0.75) based on an FY21 EV/EBITDA multiple of 7x which is roughly -1SD below 5-year mean. Share price may potentially remain subdued in the near-term given ongoing impact of Covid-19 impact coupled with uncertainties in the Yokohama IR bid. On the other hand, GenS’ war chest of SGD3.9bn (Net cash of SGD3.7bn as of FY19) will be more than sufficient to wither through this slowdown.

Source: Hong Leong Investment Bank Research - 16 Nov 2020