GenS reported 2H22 core net profit of SGD300.5m (+3.4x YoY) which brought FY22’s sum to SGD403.5m (+2.1x YoY). The results exceeded our (116.7%) and consensus (109.2%) expectations mainly due to stronger-than-expected non gaming contribution. GenS’ 4Q22 adjusted EBITDA had recovered to 89% of pre-Covid 4Q19 figure despite foreign tourist arrivals had only recovered to slightly above 50% of pre-Covid level in 4Q22. We see further room for recovery given China’s reopening as well as sustained improvement in tourist arrival numbers. We increase our FY23/FY24 by +23.7%/14.6% as we factor in higher visitation assumptions and higher contribution from non-gaming revenue. Maintain HOLD with a higher TP of SGD1.05 (from SGD0.76) based on FY23 EV/EBITDA multiple of 9.5x.

Well above expectations. GenS reported 2H22 core net profit of SGD300.5m (+3.4x YoY) which brought FY22’s sum to SGD403.5m (+2.1x YoY). The results were above our (116.7%) and consensus (109.2%) expectations. The positive deviation was mainly due to stronger-than-expected non-gaming contribution. FY22’s core net profit was arrived at after excluding net EIs of -SGD63.4m mainly comprising of trade receivables impairment (-SGD29.7m), PPE impairment (-SGD23.3m), FV loss on financial assets (-SGD9.2m).

Dividend. Proposed final dividend of 2 cents per share subject to the approval of shareholders at the next AGM (4Q21: 1 cent). FY22: 3 cents (FY21 DPS: 1 cent). We are pleasantly surprised at the generous dividend payout which came in above its FY22 EPS of 2.82 cents.

QoQ. Revenue increased +4.4% as the increase in non-gaming revenue (+24.2%) more than offset the decline in gaming revenue (-2.7%). The lower gaming revenue was due to lower hold percentage from the VIP segment. The higher non-gaming revenue was likely due to year-end festivities which attracted more crowd to its non gaming attractions. Consequently, adjusted EBITDA increased by +2.7%.

YoY. Revenue increased +1.1x due to low base in SPLY as a result of (i) the lower capacity from stringent social restrictions; and (ii) lower local visitations due to outbreak of Omicron variant in Dec 2021. Consequently, adjusted EBITDA increased by +2.7x as operating leverage improved.

FY22. Revenue increased +53.1% YoY due to (i) easing of Covid-related restrictions; (ii) recovery in foreign tourists’ arrival; and (iii) increase in capacity from rehiring of staff. Consequently, core PATAMI increased by +2.1x as operating leverage improved.

Outlook. GenS 4Q22 adjusted EBITDA recovered to 89% of pre-Covid 4Q19 figure. This is despite the fact that foreign tourist arrivals had only recovered to slightly above 50% of pre-Covid level in 4Q22 (see Figure #2). Management shared that they observed tourists’ length of stay are now longer compared to pre-Covid years, which may partly explain this strong recovery. With China’s reopening in Jan 2023 while foreign tourist arrivals continue to show recovery, we believe there are still plenty of room left for its earnings improvement. In addition, its Festive Hotel is expected to be relaunched in May 2023 post-refurbishment, which will add 389 rooms to the resort’s overall hotel inventory, expanding its capacity and visitors’ length of stay.

Forecast. We increase our FY23/FY24 by +23.7%/14.6% as we factor in higher visitation assumptions as well as higher contribution from non-gaming revenue.

Maintain HOLD; TP: SGD1.05. Post earnings adjustment, our TP increased to SGD1.05 (from SGD0.76) based on FY23 EV/EBITDA multiple of 9.5x (from 9x). We raise our EV/EBITDA multiple to reflect waning risk from Covid disruption and better earnings visibility in FY23. Since mid-Nov 2022, GenS share price has surged more than 20%, which in our view has largely priced in the prospects of the returning of foreign and Chinese tourists. We also note that currently GenT is trading at a discount to its stake in GenS, i.e. at 87.8% of its stake in GenS valued at RM5.47/share based on latest closing price. With the prospects of GenS and GenM improving and as the earnings from these subsidiaries filter through to GenT, we may potentially see a re rating in GenT’s share price as well.

Source: Hong Leong Investment Bank Research - 21 Feb 2023