GENS: Local Market Well Penetrated

• Genting Berhad’s subsidiary Genting Singapore (GENS) reported a relatively good set of results for 2020, as NP of SG$69m is above both our and consensus estimates
• However, the sharp recovery in EBITDA margin in 4Q is not sustainable, as it was mainly lifted by several one-off items (reversal of bad debts, reversal of staff bonus, etc)
• Revenue growth is likely to be challenging for 2021, as the local market is already well penetrated and the current strict border controls limit international tourist arrivals

Revenue Is Likely to Maintain Flattish for 2021

Gaming revenue for 4Q remained flattish qoq at SG$214m, which was mainly supported by the local population given that the arrival of international tourists remain insignificant given the current border controls. Without the relaxation of the borders, revenue growth is likely to remain capped, as the relatively small population size of 5.7m is already well penetrated, in our view. Although the government has started to relax some social distancing restrictions, the benefit to GENS is likely to be limited, as their revenue is not cap merely by the availability of gaming tables but also due to the limited visitors.

4Q Margin Is Not a Good Indicator of Future Performance

Despite the flat qoq revenue growth, GENS EBITDA for the 4Q20 increased by 42% qoq, as margin expanded to 67% from 50% in the previous quarter. However, we believe that the margin is not sustainable, as it was mainly supported by a few one-off items - reversal of bad debts, reversal of bonus, subsidies by the government and etc. We reckon that the EBITDA margin is likely to maintain at around 45-50% moving forward. We are not expecting any cost rationalisation program in the near term, as management has indicated that they are satisfied with the current cost structure.

Maintain HOLD and TP at RM4.20

We are keeping our earnings forecast unchanged and SOTP-derived TP of RM4.20, pending the release of GENT’s results by end-February. GENS also announced a DPS of 1 cent, which came as a positive surprise to us as we were not expecting any dividends from GENS. Although earnings are unlikely to recover to pre Covid19 level in 2021, GENS is still able to sustain itself in the current operating environment.

Source: Affin Hwang Research - 10 Feb 2021