GENTING’s Singapore unit GENS reported 3QFY23 results that beat expectations on stronger-than-expected recovery in its gaming and non-gaming businesses. We upgrade our FY23-24F net profit for GENTING by 33-12%, respectively, but keep our SoPbased TP of RM5.20. Maintain OUTPERFORM.

Stellar 3QFY23 for GENS. GENS’s 9MFY23 adjusted EBIDTA of SGD798m amounted to 91% of our full-year forecast and surpassed last year’s 12-month adjusted EBITDA. 3QFY23 adjusted EBITDA of SGD345m was nearly (76%) that of 1HFY23 earnings with gaming revenue improving to SGD460m (+13% QoQ, +28% YoY) with nongaming revenue surging even stronger to SGD230m (+22% QoQ, +68% YoY). Footfall and spending improved on strong tourist arrivals from the likes of China, India and ASEAN.

FY23-24F outlook is positive with visitor arrivals expected to stay strong. Traditionally, Singapore welcomes the most visitors in the third quarter but fourth quarter arrivals are usually not far off and could match the third quarter this year. GENS is also transforming its Resorts World at Sentosa. Project RWS 2.0 was launched in FY22 to meet an anticipated post-pandemic recovery. Hotel Ora opened in Apr 2023 as a renovated and rebranded Festive Hotel. Work to double the Forum to just over 200,000 sf began in May 2023 and should be completed by 2HCY24. Universal Studio Singapore’s new Minion Land also started construction work in May 2023 with opening targeted for 1QCY25. Early this month, application to develop another 228,658 sf of retail space and a 700-room hotel was granted by the Singapore’s Urban Redevelopment Authority. Therefore, GENS should grow as RWS expands and emerges with new offerings to serve an evolving regional market.

Forecasts. We upgrade our FY23-24F net profit for GENTING by 33- 12%, respectively, on the back of stronger and earlier recovery in both gaming as well as non-gaming performance at GENS. Singapore should continue to welcome over a million visitors each month.

We continue to like GENTING as a proxy to the reopening of international borders and the return of mainland Chinese tourists. Revenue at GENS has recovered strongly and the momentum is expected to continue. GENM’s earnings should more or less double once spendings on marketing, promotions as well as recruitment stabilises at Resort World Genting and other GENM assets transition from FY23 into FY24.

Nonetheless, despite our earnings revision, GENTING’s SoP-based TP is maintained at RM5.20 as the underlying share prices of GENM and GENS have not changed much. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

Risks to our recommendation include: (i) non-renewal of licenses, (ii) unfavourable prize payout ratios, (iii) weak consumer spending amidst high inflation, and (iv) products perceived to be socially undesirable.

Source: Kenanga Research - 14 Nov 2023