GENS reported a weaker 1QFY21 results after a strong 4QFY20 which was partly helped by one-off items. With limited domestic market size to grow, the impending cross border reopening should help recovery further. In all, we expect a better 2HFY21 before a recovery to pre-COVID-19 level next year. For now, we keep our call on GENTING unchanged pending its 1QFY21 results later this month- end.

A soft 1QFY21 at GENS. In a quarterly business overview released last Friday, Genting Singapore Ltd (GENS, Not Rated) reported a 61% sequential decline in 1QFY21 core profit to SGD44.5m, in the absence of certain one-off items that were posted in the preceding quarter. This weak set of results only made up 10% of consensus full-year FY21 forecast. At the adjusted EBITDA level, 1QFY21 earnings of SGD128.1m came slightly below expectations at 20%/18% of house/street’s FY21 estimate. However, earnings are expected to pick up further in 2HFY21 as vaccinations would have progressed to a matured stage by then.

Flattish sequential gaming revenue. Despite flattish gaming revenue inching up marginally by 2% to SGD216.9m, 1QFY21 core profit fell 61% QoQ to SGD44.5m from SGD113.7m in 4QFY20 where the preceding quarter results included reversal of impairment on trade as well as some write-back of bonus payment. It reported SGD35.8m reversal of impairment on trade receivable in 2HFY20. Given the flattish gaming revenue and one-off items previously, we believe the weaker results could be due to higher opex after stringent cost cutting last year.

Core earnings fell 16% from last year, to SGD44.5m from SGD53.2m in 1QFY20 as revenue contracted 32% to SGD277.9m from SGD406.9m when the impact of the COVID-19 pandemic was first felt in Feb 2020. The impact was greater to its non-gaming revenue which plunged 56% as opposed to a 19% decline for gaming revenue. This led to adjusted EBITDA which fell 15% to SGD128.1m from SGD151.6m. We believe a lower magnitude of decline in bottom-line as opposed to top-line could be due to cost cutting effect since the pandemic begins.

A dicey near-term outlook before it gets better. In the last quarter’s conference call, management voiced its caution given the limited local market size to grow the business due to cross border restrictions. With fear of 4th wave infections, near-term outlook remains dicey. However, being one of the best managed countries under current pandemic period, Singapore is likely to be the first few to open its border. We expect a better 2H and recovery to pre-pandemic level only in 2022.

GENS still lead near-term group’s earnings; keep OP on GENTING. With MCO 2.0 in 1QFY21 and the start of MCO 3.0 in Klang Valley last week, GENM’s immediate earnings prospects are challenging. Thus, GENS is expected to lead GENTING’s near-term earnings. For now, pending the release of the group’s 1QFY21 results later this month- end, we are keeping our OUTPERFORM call at target price of RM5.93 (5-year mean discount of 42.7% to SoP valuation) and estimates unchanged. 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 May 2021