GenS reported 1Q21 net profit of SGD40.4m which was below expectations due to weaker-than-expected footfall and higher operating expenses. We cut our forecasts for FY22/23 by -37.8/-34.8% to factor in the weaker-than-expected footfall and recovery pace. We introduce FY24 forecast. While GenS should continue to record gradual improvements in earnings due to the easing of social and borders restrictions, nonetheless the pace may be moderated due to (i) limited flight schedules; (ii) high air fares; and (iii) ongoing travel restrictions on visitors from certain countries. We maintain HOLD with an unchanged TP of SGD0.76 based on mid-FY23 EV/EBITDA (rolled over from FY22) multiple of 9x.

Below expectations. GenS reported 1Q21 net profit of SGD40.4m (+17.3% QoQ, +16.9% YoY). The results were below our (9.4%) and consensus (12.1%) full year expectations due to weaker-than-expected footfall and higher operating expenses. Note that our comparison was computed using reported net profit and did not include any EIs as the breakdown of these items are not available in the quarterly business overview (official results are only released bi-annually).

Dividend. None (1Q21: None).

QoQ. Revenue increased by +20.5% contributed by gaming (+42.2%) but partially offset by non-gaming (-16.2%) segment. The lower non-gaming revenue was due to the higher base in previous quarter as a result of a seasonally stronger holiday season which attracted more visitations to the non-gaming attractions. Adjusted EBITDA increased by a larger magnitude than revenue (+80%) due to higher contribution from the gaming segment which has a better margin.

YoY. Revenue increased by +13.2% contributed by gaming (+8.1%) and non-gaming (+25.8%) revenues due to higher footfall from relaxation of social restrictions and easing of border restrictions compared to SPLY. Despite the increase in revenue, adjusted EBITDA declined by -2.5% due to the rise in utilities expenses (energy prices have risen substantially) and expiry of government grant.

Outlook. With Singapore reopening its international borders to fully vaccinated travellers from 1 Apr 2022 and further relaxation of COVID-19 related regulations, GenS should see a sustained recovery trajectory ahead. Nonetheless, the pace of recovery may be moderated by (i) limited flight schedules; (ii) high air fares; and (iii) ongoing travel restrictions on visitors from certain countries. Furthermore, due to the strengthening SGD currency against regional peers as well as Singapore’s rising prominence as a regional financial hub, we anticipate that there will be a shift in visitor mix for GenS from mass market to VIP segment moving forward. Mass market gamblers are likely to prefer cheaper regional gaming destinations such as Malaysia, Cambodia and Philippines. We believe GenS is cognisant of this shift in traveling trend and as such, we view GenS revised SGD4.5bn RWS2.0 expansion plan (to begin construction in 2H22) which is targeted towards the premium market as well as travellers who combine their business and leisure activities to be timely as it will likely align with the visitation trend to Singapore moving forward.

Forecast. We cut our forecasts for FY22/23 by -37.8/-34.8% to factor in the weaker than expected footfall and recovery pace. We introduce FY24 forecast. We maintain HOLD with an unchanged TP of SGD0.76 based on mid-FY23 EV/EBITDA (rolled over from FY22) multiple of 9x. While GenS should continue to record gradual improvements in earnings due to the easing of social and borders restrictions, nonetheless the pace may be moderated due to reasons highlighted above.

Source: Hong Leong Investment Bank Research - 13 May 2022