Brokers’ take: DBS downgrades Genting Singapore to ‘hold’ on limited upside

DBS Group Research on Tuesday (Feb 21) downgraded Genting Singapore to “hold” from “buy” due to limited upside, coupled with potential compression on the integrated resort operator’s valuation multiples.

The research team believes it is time to take profit following the stock’s “stellar run” over the past few months, as the risk-to-reward setup is now much less favourable. Its target price on the counter is now S$1.05, implying only a 5 per cent upside from the counter’s last trading price of S$1.00 as at 3.22 pm on Tuesday.

Genting’s earnings recovery has also been largely baked into its share price, DBS said. It noted that the stock is currently trading above pre-pandemic levels even though a complete turnaround in earnings is still some time away.

“We believe that valuation multiples could compress, considering uncertainty over the return-on-investment profile of RWS 2.0 and the management’s conservative capital management,” DBS added.

The group’s reluctance to return more capital to shareholders despite having surplus capital, along with the lack of investment opportunities outside of RWS 2.0 could also disappoint the market, the research team noted.

Furthermore, DBS’ revised dividend per share projection of S$0.04 per share in FY2023 only translates to 4 per cent – less attractive compared to other quality dividend plays in the market.

DBS increased its target price to S$1.05 from S$1 after raising its earnings projections for Genting in the next two years to reflect higher gaming and non-gaming revenue.

This came amid expectations that footfall at Resorts World Sentosa (RWS) will normalise ahead of initial projections as China reopens, along with faster tourist arrival recovery across key source markets in the region.

In contrast, UOB Kay Hian (UOBKH) expects the stock to offer a moderate upside, assuming a moderately progressive dividend policy, it said in a separate report on Tuesday.

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The research team has maintained its “buy” call on Genting Singapore with a target price of S$1.15, implying a potential upside of 15 per cent. It also implies an enterprise value-to-Ebitda ratio of 9.3 times, which is 0.5 standard deviation below Genting’s historical mean.

UOBKH also believes the group is well-positioned to fulfil better capital management, particularly in 2023, after dropping its pursuit of a pricey Japan integrated resort concession.

Analysts from both research teams were also optimistic about Genting’s Q4 2022 results. The financial performance had topped DBS’ expectations slightly, while UOBKH noted that the “commendable” results were in line with Genting’s rival Marina Bay Sands.

On Monday, Genting Singapore reported that its net profit for its second half more than doubled to S$255.7 million, thanks to increased gaming and non-gaming revenue from the growth of Singapore’s international tourist arrivals.