GENS reported a weak set of 3QFY21 results on lower revenue. However, the implementation of vaccinated travel lanes should help with its road to recovery. As such, GENS is likely to see a strong 4QFY21 and improving performance in subsequent quarters. For now, we keep our call on GENTING unchanged pending its 3QFY21 results later this month-end.

A soft 3QFY21 at GENS… In a quarterly business overview released yesterday, Genting Singapore Ltd (GENS, Not Rated) reported a 61% sequential decline in 3QFY21 core profit to SGD26.0m on a 9% or SGD25.4m decline in revenue. This brought YTD 9MFY21 core profit to SGD137.5m which made up 59% of market consensus’ estimate. At the adjusted EBITDA level, 9MFY21 earnings constituted 58%/65% of house/street’s FY21 estimates. However, earnings are expected to pick up in the year-end holiday season in 4QFY21 with the implementation of vaccinated travel lanes (VTL) that allows business and leisure travel from designated countries.

…as revenue declined. 3QFY21 core profit plunged 61% QoQ to SGD26.0m on the back of 9% decline in turnover to SGD251.5m. Headline net profit of SGD60.7m which jumped 11% from SGD54.4m, owing to a write-back of accounting accruals of SGD45.9m made in prior periods relating to the Yokohama IR bid. YoY, core profit contracted 64% from SGD73.2m with revenue declining 16% from SGD301.0m given a series of enhanced safety measures introduced to curb the surge of new community cases. YTD, 9MFY21 core profit of SGD137.5m was recorded against core loss of SGD88.5m as most operations at RWS were halted for almost three months from 6 Apr to 30 Jun last year.

Better outlook as borders slowly reopen. Earnings are expected to improve further with the implementation of VTL which currently allows fully vaccinated travellers from 12 countries to enter Singapore without quarantine. By 15 Nov, travellers from Korea will be the next to join the VTL list. There are more countries expected to list in the VTL and this will hasten economic recovery in the island-state which should benefit GENS as well. As such, a recovery to pre-pandemic level is likely to be seen in 2022.

Recovery on the way; keep OP on GENTING. Both GENM and GENS will see better earnings from 4QFY21 with the relaxation of interstate and cross border travelling and operation restrictions. Thus, this will eventually benefit parent-co GENTING. For now, pending the release of the group’s 3QFY21 results later this month-end, we are keeping our OUTPERFORM call at target price of RM6.47 (+1SD to 5-year mean at 41% discount to SoP valuation) and estimates unchanged. Risk to our call on GENTING is a prolonged COVID-19 pandemic continuing to restrict travelling and hence affecting its casino operations.

Source: Kenanga Research - 10 Nov 2021