Genting Singapore Ltd (GENS)’s (NOT RATED) 1QFY23 results met market expectations with its core earnings tripling YoY as tourists returned in droves. The island state registered 2.9m tourist arrivals in 1QCY23 (vs. a mere 125k in 1QCY22). Looking forward, China’s reopening since Jan 2023 will further drive GENS’s earnings recovery. We maintain our forecasts, TP of RM5.86 and OUTPERFORM call for parent GENTING.

GENS’s 1QFY23 results met expectations. 1QFY23 core net profit of of SGD131.2m came in at only 20% of the full-year consensus estimate. However, we consider the results as within market expectation as we expect stronger quarters ahead for GENS as tourist arrivals accelerate.

Recovery continued. 1QFY23 core profit tripled YoY to SGD131.2m from SGD43.5m in 1QFY22 while revenue grew by 54% over the same period. The improved results were mainly attributed to the ongoing recovery of regional travel and gaming demand. In 1QCY23, Singapore registered tourist arrivals of 2.9m as opposed to 125k in 1QCY22.

However, non-gaming revenue witnessed a 15% decline due to elevated airfares during the festive season which impacted visitor volume. On a QoQ basis, core profit fell slightly by 2% from SGD133.3m in 1QFY22 on the back of 11% decline in revenue. We believe the decline was due to an unfavourable luck factor which caused the adjusted EBITDA margin to deteriorate to 40% from 47% previously.

We keep our FY23/FY24 earnings forecasts of parent GENTING.

Despite the booster from China’s reopening since Jan 2023, the group to a certain extend is constrained by the availability of flights and affordable fares, as well as inflation crimping consumer spending. Nonetheless, the company is ready to cater for more visitor arrivals with its on-going RWS 2.0 expansion plan.

Maintain OUTPERFORM on GENTING. We remain optimistic that the two-year streak of lacklustre earnings endured by GENS had ended in 1HFY22 with the opening of international borders from April 2022 as well as China’s reopening early this year. And, the same would apply to GENM as well. All this should eventually benefit parent-company GENTING. For now, pending the release of the group’s 1QFY23 results later this month-end, we are keeping our OP call and TP of RM5.86 (at a 40% discount to SoP valuation to encompass a holding company discount and a risk premium to reflect related party transactions) for GENTING. There is no change to our TP based on ESG given a 3-star rating as appraised by us (see Page 4)

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

Source: Kenanga Research - 15 May 2023