We raised GENTING’s FY22F/FY23F earnings by 21%/19% following the strong set of GENS’ 9MFY22 results where core profit jumped 75% QoQ to SGD241.0m on higher revenue as tourist returned. Singapore registered a 91% QoQ surge in tourist arrivals to 2.04m in 3QCY22 as opposed to pre-border reopening arrivals of only 246k in 1QCY22. We expect another solid quarter in 4QFY22 given the year-end seasonality. For now, we keep our OP call and TP of RM5.86 on GENTING, pending its 3QFY22 results later this month-end.

Upbeat GENS’ 3QFY22 numbers… In a quarterly business overview released yesterday, Genting Singapore Ltd (GENS, Not Rated) reported 3QFY22 core profit which doubled sequentially to SGD132.3m, with revenue surging 49%, totalling YTD 9MFY22 core profit to SGD241.0m which made up 72% of consensus’ FY22 forecast. We deem the result is above expectation given that 4QFY22 is seasonally a strong quarter on year-end holiday season and result usually is stronger than that of 3Q. At the adjusted EBITDA level, 9MFY22 earnings of SGD518.1m accounted for 86%/74% of house/street’s FY22 forecasts.

…led by ongoing recovery of regional travelling. 9MFY22 core profit bounced strongly by 75% to SGD241.0m from SGD137.5m last year thanks to a solid earnings recovery in 3QFY22 (with core profit of SGD132.3m making up more than half of the 9MFY22 results). This was backed by 49% QoQ and 107%YoY hikes in 3QFY22 revenue with gaming revenue led by the more affluent and premium customers that stayed slightly longer. Singapore registered a 91% jump in tourist arrivals of 2.04m in 3QCY22 from 1.07m in 2QCY22 a contrast to only 246k during the pre-reopening of international border from 1 April, in 1QCY22.

Raise GENTING’s FY22/FY23 earnings forecasts, by 21%/19% to reflect the strong GENS’ 3QFY22 earnings.

A better 4QFY22 GENS is expected, given the seasonally year-end festive season as GENS is likely to experience growing volume. In the quarterly business overview note, we sense improved sentiment as the company is confident and excited about growth opportunities in Singapore in which its RWS 2.0 expansion is proceeding expeditiously as planned with the new Festive Hotel scheduled to re-open in 1QFY23, boosting room inventory by 389 keys.

A recovery is on the way; maintain OP on GENTING. We remain optimistic that the two-year lackluster earnings streak at GENS is likely ending with earnings recovery from 2QFY22 as the reopening of international borders from April 1 slowly brings back visitorship. And, this would apply to GENM as well. This should eventually benefit parent-company GENTING as well. For now, pending the release of the group’s 3QFY22 results this month-end, we are keeping our OP call and TP of RM5.86 (a 40% discount to SoP valuation to encompass a holding company discount and a risk premium to reflect related party transactions) for GENTING. We do not revise our TP as the valuation for GENS is based on market price which has not changed much in the past three months.

Risk to our call on GENTING include: (i) non-renewal of incenses, (ii) unfavourable luck factors, (iii) weak consumer spending amidst high inflation, and (iv) products perceived to be socially undesirable.

Source: Kenanga Research - 11 Nov 2022