Broker's take: UOB issues 'buy' call for Genting Singapore, sets price target of S$0.80

BROKERAGE UOB Kay Hian has maintained its market weight on Singapore's gaming sector and issued a "buy" call for Genting Singapore.

The recommendation comes as UOB's research team last Thursday noted Genting Singapore's "bargain-price valuation" and "appealing dividend yields of 5.5 to 6.1 per cent".

UOB has a price target of S$0.80 for the counter. As at 10.04am on Monday, Genting Singapore was trading at S$0.75, up S$0.01 or 1.4 per cent, with some 5.7 million shares changing hands.

With Covid-19 taking a toll on the tourism industry, UOB analysts Vincent Khoo and Jack Goh are expecting steep declines in both gaming and non-gaming revenues for Resorts World Sentosa (RWS) in Q1, given its high dependency on foreign tourists.

"The financial pain is expected to further escalate in Q2, as RWS will be closed for one-and-a-half months to comply with the government's 'circuit-breaker'," they wrote.

Nonetheless, the analysts added that these have been reflected in their previous earnings cuts for Genting Singapore, which included year-on-year gross gaming revenue and non-gaming revenue fall of more than 50 per cent for the first half this year and 20 per cent for Q3 respectively.

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Overall, they like Genting Singapore for its "highly favourable risk-reward dynamics for longer-term investors".

This comes on the back of Genting Singapore maintaining "lucrative dividends in 2020, sustainable by net cash of 33 Singapore cents per share", and a conjecture at this point that the Singapore government may allow integrated resort operators to stretch out the implementation of their mandated S$4.5 billion expansion plans.

Mr Khoo and Mr Goh also expect a "swift recovery" in Genting Singapore's share price when Covid-19 tapers off, given the sector's "resilient earnings track record".

Separately, UOB noted that Marina Bay Sands (MBS) was hit by overall weaker gaming statistics and posted weak results for the first quarter this year.

MBS's Q1 revenue declined 20.1 per cent year on year and mass gross gaming revenue shrank significantly due to lower patronage amid the Covid-19 pandemic. Going by Las Vegas Sands' Q1 results, MBS's adjusted earnings before interest, taxes, depreciation, and amortisation fell 33.3 per cent to US$282 million from a year ago, mainly due to weaker rolling chip volume, despite higher win percentage, the bank noted.

VIP volume fell 16.1 per cent quarter on quarter and 6.9 per cent year on year, while mass market volume (slot and table) was also weaker, recording a steep 20 per cent year-on-year drop.

Nonetheless, looking beyond the Covid-19 period, the analysts are maintaining Genting Singapore's market weight on the Republic's gaming sector.

"Despite the interim caution amid the deep earnings destruction caused by the lockdowns undertaken by almost all governments in Asia, we are still positive that the sector will outperform and recover swiftly when the Covid-19 impact tapers off," said Mr Khoo and Mr Goh.