GENS reported yet another commendable recovery in 4QFY20 which was partly due to reversal of impairment. Without this, the results would be maintained at 3QFY20 level which is still fairly commendable. GENS remains the key earnings recovery driver for GENTING. With the world currently at vaccination stage, better prospect for cross border travelling re-opening is a positive for GENTING. Maintain OP on GENTING at a TP of RM5.80.

GENS’ 2HFY20 results came above expectations. Genting Singapore Ltd (GENS, Not Rated) reported 2HFY20 core profit of SGD186.9m, chalking a 55% QoQ jump in 4QFY20 core profit to SGD113.7m despite flattish revenue. This brought FY20 core profit to SGD123.6m which beat consensus forecast of SGD35.6m, which could be due partly to the SGD35.8m reversal of impairment on trade receivables in 2HFY20. At the adjusted EBITDA level, FY20 earnings of SGD427.0m beat house/street’s FY20 estimate of SGD249.0m /SGD340.1m. It declared a SGD0.01 DPS for FY20 vs. a total of SGD0.04 DPS paid in FY19.

Steady revenue in 4QFY20. It posted 2HFY20 revenue which rose 37% to SGD615.5m from SGD448.2m in 1HFY20 as business reopened from July 2020. This implies fairly flattish 4QFY20 revenue which only rose 4% QoQ to SGD314.5m. Meanwhile, 2HFY20 turned around with core profit of SGD186.9m compared to the business-closed affected 1HFY20 core loss of SGD63.3m. QoQ, 4QFY20 core profit jumped 55% to SGD113.7m from SGD73.2m which we believe is largely due to the abovementioned reversal of impairment coupled with some write-back of bonus payment as rolling chip win was maintained at 3.8% for both 3QFY20 and 4QFY20. Stripping this out, the core earnings would be fairly flattish as well, in tandem with the top-line. YoY, 2HFY20 and FY20 core profits plummeted 50% and 82% to SGD186.9m and SGD123.6m from SGD373.8m and SGD705.1m, respectively, primarily due to the pandemic.

Awaiting borders reopening to boost recovery. Management remains cautious given the limited local market size to grow the business. Unless cross border restrictions especially for leisure travelling is lifted; a full recovery is unlikely in the near term. Meanwhile, management is encouraged by measures taken by the City of Yokohama to launch a formal bidding process for Integrated Resort (IR). It was reported in end-Jan that Yokohama has announced the timeline for its request-for-proposal (RFP) with the first phase from Feb to May and second phase between 1 and 11 June. The city is expected to choose the winner during the summer. Meanwhile, we upgraded GENTING’s FY20 earnings estimate by 41% to account for this strong GENS’s 2HFY20 earnings which mitigated our earnings cut by 32% for GENM (report dated 18 Jan 2020, Awaiting Better Days) but trimmed FY21E earnings by 4% as we cut GENM’s earnings by 22% with unchanged GENS’ estimates.

GENS to lead earnings recovery; maintain OP on GENTING. Although GENS is still half way from a full recovery, looking at the results in 2HFY20 vs. that of 2HFY19, it should recover quickly once travelling restrictions are lifted. Meanwhile, in view of the fairly stable pandemic situation in Singapore as opposed to Malaysia, the UK and USA, GENS is expected to take the driver seat of earnings recovery for the group. As such, we prefer GENTING over GENM. GENTING is maintained at OP with a higher OP of RM5.80 from RM5.70 after TP adjustments/market price of GENM/GENS. Risk to our call on GENTING is a prolonged COVID-19 pandemic continuing to restrict traveling and hence affecting its casino operations.

Source: Kenanga Research - 10 Feb 2021