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Brokers' take: Analysts upbeat on Genting Singapore after Q3 recovery, vaccine news

Casino at Resorts World Sentosa - Genting Sg - July 1 2020 - ST file.jpg
DBS is confident that Genting Singapore, which runs Resorts World Sentosa, can at least churn core Ebitda of S$75-100 million on a quarterly basis.

GIVEN that "normality is not too far away", DBS Group Research has upgraded Genting Singapore to a "buy" call, from "hold" previously. The research team also raised its target price to S$1.00, from S$0.70.

Meanwhile, CGS-CIMB reiterated its "add" rating while upping its target price to S$0.86, from S$0.73.

The mainboard-listed counter advanced further on Tuesday, rising one Singapore cent or 1.2 per cent to trade at 81.5 cents as at the midday break, on 34.8 million shares changing hands.

Shares of the integrated resort operator, its Malaysian counterpart and their parent company all climbed to multi-month highs on Monday, boosted by Genting Singapore's sequential earnings rebound in the July-September quarter.

Genting Singapore is poised for the eventual return of tourism, and also has an "undemanding" valuation with a 3.1 per cent dividend yield, DBS said in a note on Tuesday morning.

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The company, which runs Resorts World Sentosa, outperformed in the third quarter this year, demonstrating the resilience of gaming demand.

That gives DBS "confidence that the company can at least churn core Ebitda (earnings before interest, taxes, depreciation and amortisation) of S$75-100 million on a quarterly basis in the absence of tourists", wrote analyst Jason Sum.

Furthermore, the recent breakthroughs on the Covid-19 vaccine front underpin DBS's optimism on a swift turnaround in travel activity in the second half of 2021.

Moderna on Monday said its experimental vaccine was 94.5 per cent effective in preventing the novel coronavirus, based on interim data from a late-stage clinical trial. Following Pfizer's announcement, Moderna was the second US company in a week to report results that far exceeded expectations.

The recent positive developments on Covid-19 vaccines have also pumped up stock prices of travel-related companies, including flag carrier Singapore Airlines and ground handler SATS, which gained 3.4 per cent and 2.5 per cent respectively by the midday break on Tuesday.

DBS's Mr Sum noted that such vaccine news has enhanced visibility on Genting Singapore's earnings recovery.

He now expects Genting Singapore's 2021 Ebitda to come in at around 74 per cent of the S$1.19 billion figure in 2019, while 2022 Ebitda likely recovers to about 92 per cent of 2019's level.

In a note on Monday, CGS-CIMB predicted that prospects could improve further in the fourth quarter this year with Singapore gradually reopening and the government encouraging domestic tourism.

The brokerage believes Genting Singapore will rake in at least S$307.4 million in revenue for Q4 2020. "As pent-up demand could have lifted Q3's gaming revenue, we pencil in a 10 per cent quarter-on-quarter discount to Q4's gaming revenues; we also expect non-gaming revenue to fall 60 per cent year on year in Q4," said analyst Cezzane See.

The company's further recovery hinges on the return of tourists, the timeline for which is still uncertain. However, CGS-CIMB thinks Genting Singapore's robust balance sheet will tide it through the tough times.

Its position as one of Singapore's two casinos also underscores its importance to tourism in the city-state, Ms See added.

DBS noted that based on the shares' closing price of 80.5 cents on Monday, they were trading at an FY21 enterprise-value-to-Ebitda ratio of around 7.7 times, which is about 0.8 standard deviation below its five-year average.

"Genting Singapore continues to trade at an unjustifiably steep discount to its regional peers," Mr Sum said on Tuesday morning.

DBS's Ebitda estimates are 14.4 per cent above consensus for 2021 and 7.3 per cent above consensus for 2022, as the research team expects pent-up demand to "quickly materialise" with the easing of travel restrictions.

Genting Singapore on Saturday reported third-quarter revenue and earnings that beat analysts' expectations, as local gamblers helped to pull the firm back into the black.

Net profit after tax stood at S$54.4 million for the three months to September, reversing from the net loss of S$163.3 million for the previous quarter. However, year on year, it was still down 65.7 per cent from a S$158.9 million net profit previously.

RHB on Monday upgraded the stock to "neutral" from "sell", and raised the target price to 72 cents from 62 cents. Maybank Kim Eng maintained its "hold" call on Sunday with a slightly higher target of 78 cents.

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