Short-term pain, long-term gain for Genting Singapore: analysts

Singapore

ANALYSTS agreed that the casino entry levy implemented on Thursday, higher casino tax rates from March 2022, and the S$4.5 billion reinvestment plan for Resorts World Sentosa (RWS) will result in a short-term hit to earnings for Genting Singapore.

That said, they are generally positive that in the long term, the levies could curb problem gambling, and the investment to ramp up facilities and attractions at RWS will bear fruit.

Even though all analysts lowered their target prices for Genting Singapore, the majority maintained their "buy" recommendations.

But on Thursday, the market seemed to focus on short-term implications as Genting Singapore shares were heavily sold.

The counter gave up gains on the year to close at S$0.97, down S$0.10 or 9.4 per cent, with 239.3 million shares changing hands.

Maybank Kim Eng lowered its recommendation on Genting Singapore to "hold" with a target price of S$1.12. Maybank Kim Eng analyst Yin Shao Yang said the "casino entry levy and tax rate hikes will weigh on short-term earnings before its potential is realised in 2024-2025".

RHB Research Institute, too, downgraded Genting Singapore to "neutral" and lowered its target price from S$1.22 to S$1.08.

The brokerage said its call was made in view of RWS' higher-than-expected capital expenditure (it had a previous guidance of S$1 billion) for redevelopment plans and a 3 percentage point hike in the gaming tax.

Meanwhile, DBS Equity Research is most bullish on Genting Singapore, maintaining its "buy" recommendation with what is a street-high target price of S$1.54.

DBS analyst Mervin Song noted: "Given that a large proportion of the new hotel rooms and attractions are expected to be opened after 2022 when the 3 per cent increase in gaming taxes is implemented, there may be a short one to two-year window when Genting Singapore's earnings are tempered.

"However, we understand that the increase in tax rate may be offset by the opening of some attractions such as the Oceanarium and growth in the overall gaming business."

OCBC Investment Research's Carmen Lee maintained her "buy" call with a fair value of S$1.31.

UOB Kay Hian maintained its "buy" call, but lowered its target price from S$1.32 to S$1.26. UOB Kay Hian analyst Vincent Khoo said the levy hike should have only "a modest impact on Genting Singapore's earnings" which is estimated to have a 6 to 7 per cent direct impact on the casino operator's bottom line in 2022.

This is likely to be offset by the incremental gaming and non-gaming earnings from RWS' cumulative future reinvestments of at least S$4.5 billion, he added.

A Genting Singapore spokesman told The Business Times the company intends to add up to 1,100 new rooms, which together with new attractions, would encourage longer stays and enhance its revenue and earnings.

CGS-CIMB maintained its "add" call on longer-term positives, but like others, lowered its target price - now S$1.11.

CIMB analyst Cezzane See said given that Genting Singapore is also considering project financing for its reinvestment plans for RWS, there should still be a sufficient current cash pile of around S$4 billion which could be set aside for Genting Singapore's interest in setting up an IR in Japan.

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