Amid lingering uncertainty, Genting Singapore is a long-term bet

IF "ugly" had a face for casino and leisure giant Genting Singapore, it could well be S$0.51 - the 11-year low the blue chip had plumbed to around mid-March on anxiety over the impact of Covid-19 on its flagship Resorts World Sentosa (RWS) - one of the city-state's two integrated resorts (IR) and top tourist magnets.

"It's simply too cheap to ignore," remarked DBS Group Research back then after investors dumped the stock on Genting's warning that first-half year results would be hurt as visitors shun its hotels, restaurants, casino and meetings facilities.

Many analysts still deem the counter a bargain now, although Genting shares have recovered to around S$0.74 - down over 20 per cent year-to-date - and despite the company a week ago issuing a bleak first quarter to March business update.

Among 21 analysts polled by Bloomberg, 10 are calling a "buy" on the counter while another 10 have a wait and see or "hold" call, as at last Friday.

Only one analyst - from RHB Research - stands alone with a "take profit" recommendation on expectations that the company may not pull off a swift recovery, and hence the stock price could suffer more.

That's quite an endorsement for the blue-chip stock with a market capitalisation of some S$9 billion. More so as the gaming stalwart is expected to report more dire numbers for the second quarter as its operations take in the full brunt of Singapore's "circuit breaker" that has led the group to suspend almost all operations at leisure-centric and tourist-reliant RWS in April and May.

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For Q1, gaming revenue from the Singapore IR fell 38 per cent to S$268 million from a year ago while non-gaming revenue slipped 34 per cent to S$138 million. As a result, group revenue fell 36 per cent to S$407 million.

Earnings before interest, tax, depreciation and amortisation or Ebitda - a key metric especially for the capital-intensive casino business - more than halved to S$147 million from S$330 million a year earlier; quarter-on-quarter, Ebitda plunged 49 per cent.

Q2 will be the hardest hit - a "likely bottom", says Nomura Research - and then recover as restrictions begin to ease - or so, the general thinking goes.

Property tax rebates and wage offset measures under Singapore's package to aid ailing sectors will result in savings of up to S$200 million for the group, analysts estimate.

But many questions remain, such as when Genting can re-open for business, when will Singapore's border controls be lifted and to what extent will visitors flock back to its facilities.

Still, analysts have chosen to keep their wager on Genting. For one, it pays good dividend with a yield of around 5 per cent historically. Although Genting doesn't have a fixed dividend policy, it has never cut dividends on an absolute basis, not even back in 2015 when Ebitda and net profits were hammered amid a sectoral slump.

This tradition faces little risk of being upended, not least because of Genting's cash hoard of S$3.7 billion as at end-2019. The healthy balance sheet also gives the casino operator some muscle to ride out the coronavirus storm.

Genting is still betting on Japan to boost its long-term earnings; the outcome on the ongoing Request for Concept (RFC) by Yokohama City in relation to the casino concession is expected to be known in the second half of this year. Even if its Japan dream is dashed, some hopeful analysts expect Genting to dole out a special dividend instead. In short, shareholders can stake a win if this plan swings either way.

Also, most analysts reckon that Genting's stock is unlikely to hit fresh lows.

"While we brace for the shares to fall, it is improbable that the shares will breach below this year's low of S$0.51, which is already at a historical low," said UOB KayHian in an April report.

But that's not to say that Genting faces no competition, particularly as value emerges among the Macau casino stocks that were clobbered by the outbreak as travel bans between Macau, Hong Kong and China are starting to be relaxed.

In short, while the chips are down for Genting - in all likelihood, this is going to be the case for much of 2020 - not all bets are off with an eye on the longer term.

If you reckon Genting is a worthwhile play, this Chinese proverb may come in useful: "If you must play, decide upon three things at the start: the rules of the game, the stakes, and the quitting time."