GENS’ FY19 results were well on track with a higher dividend surprise. However, Covid-19 has massively disrupted business activities in the region, and also taking a toll on the Genting Group in the immediate term. A better picture should emerge in the next 1-2 months enabling clearer gauge beyond 1HCY20. For now, we keep our call unchanged pending its 4QFY19 results release, expected end of the month.

GENS’ FY19 results well on track. Genting Singapore Ltd (GENS, Not Rated) reported FY19 results that matched expectations with core profit of SGD705.1m which came 3% above consensus. At the adjusted EBITDA level, FY19 earnings of SGD1.19b accounted for 100%/99% of house/street’s estimates. It declared SGD0.025 DPS in 4QFY19, which is higher than the SGD0.02 paid in 4QFY18, totalling YTD FY19 DPS to SGD0.04 as opposed to SGD0.035 paid in FY18.

Improved sequential earnings on luck factor. 4QFY19 core profit rose 13% QoQ to SGD176.0m from SGD155.2m in 3QFY19 on the back of 2% hike in revenue to SGD607.2m, largely due to better luck factor with rolling chip win inching up to 3.4% from 2.6% in the preceding quarter. The improved luck factor led to a 7% rise in gaming revenue. However, market share for VIP fell to 43% from 47% while non-VIP also deteriorated to 35% from 39% previously. Meanwhile, non-gaming segment saw revenue shrinking 7% to SGD218.9m from SGD234.6m partly due to lower daily average visitation of 20,000 from 23,000 in 3QFY19. On the other hand, impairment on trade receivables continued to fall to SGD17.7m from SGD25.0m previously.

Higher depreciation weighed on FY19 growth. YoY, 4QFY19 core earnings jumped 16% from SGD152.3m primarily due to higher business volume albeit flattish luck factor at 3.4% while depreciation was reduced by 7% or SGD7.5m and interest expense fell to SGD1.1m from SGD8.9m on the back of full repayment of SGD680m borrowings in Apr 2019. YTD, FY19 core profit contracted 8% to SGD705.1m from SGD766.7m due to a 24% or SGD74.3m jump in depreciation which has surged since 4QFY18 owing to written-down or recognised assets that can be demolished or rebuilt after the government approved its Expansion 2.0. On the other hand, interest expense fell 43% or SGD15.4m due to the abovementioned loan repayment.

Pessimistic on 1HCY20 on new coronavirus outbreak. We have not heard of such downbeat view from the management before but it is pessimistic on 1HCY20 as the deadly virus is already disrupting businesses especially with Singapore being a services-driven economy. Meanwhile, it may not spend more A&P at such a difficult time but will refurnish 200-300 hotel rooms. Meanwhile, at the EGM, the shareholders have approved GENS to submit one or more bids for Japan IR with an investment of not more than USD10b. It has so far submitted Request-for-Concept (RFC) for Osaka and Yokohama.

Maintain GENTING’s call for now. We are keeping our OUTPERFORM call, price target of RM7.00/share, which is based on 3-year mean discount of 42.4% to SoP of RM12.14, and earnings estimates for GENTING unchanged for now, pending the release of its 4QFY19 results later this month-end. Given the disruption to tourism industry owing to the new coronavirus outbreak, we expect a substantial earnings cut in the coming weeks post-GENTING earnings release. Risks to our call on GENTING include weak business volume and poorer luck factor.

Source: Kenanga Research - 13 Feb 2020