GenS reported 1H22 core net profit of SGD103m (+68.8% YoY), which was below our expectation accounting for 38.5% of our full-year forecast. The negative deviation was due to lower-than-expected contribution from gaming segment as a result of (i) lower hold percentage; and (ii) limited operating capacity as a result of labour shortage. We lower our FY22/23/24 forecasts by -14.2%/-7.2%/-1.3% to factor in the results shortfall for the quarter as well as lower operating capacity assumptions. Maintain HOLD with a higher TP of SGD0.81 (from SGD0.76) based on 9x of FY23 EV/EBITDA (rolled over from mid-FY23).

Below expectations. GenS reported 1H22 core net profit of SGD103m (+68.8% YoY), making up 38.2% of our and 28.9% of consensus expectations, respectively. The results were below expectations due to lower-than-expected contribution from gaming segment as a result of (i) lower hold percentage; and (ii) limited operating capacity due to labour shortage. 1H22 core net profit was derived after adjusting for +SGD18.6m of EIs mainly comprising of impairment of PPE (SGD23.3m). The PPE impairment was mainly due to the write-off for some of the resort assets as these assets will not be in use under the group’s RWS2.0 refurbishment plan.

Dividend. Declared 1 cent interim dividend, ex-date on 26 Aug 2022. (1H21: none). Dividend declaration was a pleasant surprise, with DPS exceeding reported EPS of 0.7 cent.

QoQ. Revenue increased by +10.8% contributed by gaming (+2.7%) and non-gaming (+39.8%) segments. Despite borders reopened and increase in foreign visits to the country, gaming revenue only increased marginally by 2.7% due to (i) lower hold percentage; and (ii) limited operating capacity as a result of labour shortage. Consequently, adjusted EBITDA increased by 15.3%.

YoY. Revenue increased by +25.9% contributed by gaming (+6.5%) and non-gaming (+1.4x). The top line improvement was mainly due to increase in operating capacity as a result of the easing of Covid-19 related restrictions. The gaming revenue increased by a smaller magnitude compared to non-gaming mainly due to (i) lower hold percentage in the gaming segment; and (ii) low base effect in non-gaming segment. Despite an increase in revenue, adjusted EBITDA declined by -2.8% due to (i) higher casino tax rate (+3ppt effective 1 Mar 2022); (ii) increase in employee salaries and related cost from rehiring and lower government grant (+20%); and (iii) increase in utilities expenses (energy prices have risen substantially).

YTD. Revenue increased by +19.5% contributed by gaming (+7.3%) and non-gaming (+75.4%) due to the same reasons as mentioned in the YoY paragraph above. Core PATAMI increased by a larger magnitude of +68.8% due to better operating leverage as well as (i) higher interest income of SGD 12.2m (+53.8%); (ii) lower finance cost of SGD1.4m (-23.9%); and (iii) lower taxation of SGD25.7m (-18.7%).

Outlook. Despite the significant improvement in foreign visits (see Figure #2 and #3), GenS did not witness an improvement of similar magnitude mainly due to (i) lower hold percentage in the gaming segment; and (ii) limited operating capacity as a result of labour shortage. Due to these reasons, RWS’ GGR market share for 1H22 was only 35% (vs. 65% for MBS). Management shared that they plan to hire an additional 1.6k workers by end of the year, adding c.32% to the current workforce of c.5k workers. The recruitment is making good progress over the past several weeks and management believes they are on track in achieving their hiring target. In addition, management is optimistic that GenS should see a much better 2H22 on the back of (i) normalized hold percentage in gaming segment; (ii) increase in operating capacity; (iii) resumption of MICE events (>50 key conferences with more than 100k visitors are confirmed for 2H22); and (iv) the increase in foreign visitations.

Forecast. We cut our forecasts for FY22/23/24f by -14.2%/-7.2%/-1.3% to factor in the results shortfall for the quarter as well as lower operating capacity assumptions.

We maintain HOLD with a higher TP of SGD0.81 (from SGD0.76) based on 9x ofFY23 EV/EBITDA (rolled over from mid-FY23). While GenS recorded a weaker-than expected recovery in 1H22, we believe the group should see gradual sequential improvements due to reasons highlighted above.

Source: Hong Leong Investment Bank Research - 15 Aug 2022