Brokers’ take: Analysts lift targets for Genting Singapore as China reopens

ANALYSTS are generally positive about the prospects for Genting Singapore : G13 0% as Chinese tourists return to the city-state, predicting the casino operator to see faster-than-expected recovery in 2023. 

Morgan Stanley has upgraded Genting Singapore to “overweight” and increased its target price to S$1.15 from S$0.85, while Maybank Securities has raised its target to S$0.94 from S$0.88. OCBC Investment Research has lifted its fair value estimate to S$1.06 from S$0.99. 

While all three brokerages are expecting Genting Singapore to be a key beneficiary of an influx of tourists following China’s reopening, they have also outlined concerns of competition from regional casino operators in Asean and Macau.

With Chinese tourists returning, Morgan Stanley projects the benefits of the rebound to be visible in the first two quarters of FY2023. 

The brokerage’s research team predicts visitation, revenue and Ebitda (earnings before interest, taxes, depreciation and amortisation) recovery momentum to be the stock’s catalyst this year. It has therefore raised Ebitda estimations for FY2023 and FY2024 by 9 per cent and 11 per cent, respectively. 

Genting Singapore’s Ebitda is now projected to increase 10 per cent quarter on quarter to S$278 million for the fourth quarter of FY2022, while dividend per share for FY2022 is estimated to come in at S$0.025. 

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In the near term, Morgan Stanley believes the group’s earnings momentum will be supported by its Q4 FY2022 Ebitda being stronger than the previous quarter. 

The higher projections also come as Singapore is expected to see structurally higher market size post-Covid due to excess capital parked by affluent Asians in Singapore.

Morgan Stanley estimates free cash flow to equity (FCFE) for FY2023 to now be 21 per cent higher on faster China reopening, while FY2024 FCFE is 34 per cent higher to account for structural growth in the Singapore gaming market.

Gross gaming revenue (GGR) for FY2023 and FY2024 are also expected to be at US$4.4 billion and US$5.2 billion respectively, compared with US$4.6 billion in 2018. 

While OCBC analyst Chu Peng also expects a “sequential recovery” for Genting Singapore on the back of a tourism rebound, she highlights that such optimism may be largely priced in. 

She maintains a “hold” call on the stock, noting that the counter’s share price has already risen over 20 per cent in 2022 and about 4 per cent in the year to date. 

Like OCBC, Maybank Securities maintains “hold” on the stock despite a higher price target. 

“While (Genting Singapore) is undoubtedly one of the best Chinese tourism proxies on the Singapore Exchange, we are unsure if all Chinese gamblers, especially VIPs, will return,” said Maybank analyst Samuel Yin in a report on Monday (Jan 30). 

Yin, nonetheless, expects a higher level of Chinese VIP gamblers to return due to China’s currently-weak economy and a cross-border gambling ban in place. While FY2023 to FY2024 VIP volumes for Resorts World Sentosa (RWS) were previously projected to stabilise at 75 per cent of FY2019 levels, this has been lifted to 88 per cent. 

Maybank Securities has also raised its Ebitda projections for FY2023 and FY2024 by 2 per cent and 9 per cent respectively, with expectations for RWS’ GGR to fully recover to 2019 levels by FY2024. 

However, he noted that the “threat of Thai integrated resorts ought not be taken lightly”, as it can potentially draw Chinese gamblers away from Singapore and call the financial viability of the S$4.5 billion RWS 2.0 expansion into question.

That said, while Genting Singapore is expected to face “more intense competition” by regional casino operators for the regional premium mass market, Yin expects the retention of some Singaporean gamblers in Singapore, and the return of Chinese mass market gamblers to compensate for FY2024 revenue.

Shares of Genting Singapore closed 1.5 per cent or S$0.015 higher at S$0.99 on Tuesday (Jan 31).