Analysts from CGS International, DBS Group Research and Morningstar Research have lowered their target prices on Genting Singapore G13 (GENS) following its weaker-than-expected business update for the 3QFY2024 ended September.
CGS International kept its “add” call with a lower target price of $1.05 from $1.21 previously while DBS maintained its “buy” call with a lower target price of 95 cents, down from $1.05 previously. Morningstar also remains relatively optimistic with a “four-star rating”, while cutting its fair value estimate by 4% to 98 cents.
Weaker results attributed to gaming segment
GENS’s 3QFY2024 revenue declined 19% y-o-y to $562 million, while adjusted earnings before interest, taxes, depreciation and amortisation (ebitda) fell 53% y-o-y and 19% q-o-q to $164 million.
This missed expectations at 64.3% and 64.8% of CGSI’s and Bloomberg’s consensus FY2024 estimates.
Morningstar analyst Jennifer Song noted that this was “disappointing”, while DBS analysts Jason Sum and Chee Zheng Feng added that it missed expectations.
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GENS’s management has attributed this to lower VIP rolling volume and win rate, supported by a 28.2% y-o-y and 13.5% q-o-q decline in gaming revenue.
GENS’s 3QFY2024 gaming revenue of $330 million was the lowest since 2Q2022.
“Despite a continued rise in visitor arrivals from China, we think the increased scrutiny on cross-border gambling and the slowdown in China’s economic growth also dampen the VIP revenue outlook,” Morningstar’s Song adds.
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Similarly, CGSI analyst Tay Wee Kuang believes the gaming segment remains challenging as its peer, Marina Bay Sands (MBS), also reported a 14% y-o-y decline in gaming revenue on the back of a 19.5% y-o-y decline in VIP rolling volumes to US$6.5 billion ($8.68 billion), according to Las Vegas Sand’s 3QFY2024 results.
Non-gaming segments
GENS saw its non-gaming revenue grow 22.2% q-o-q in 3QFY2024 due to seasonality as international visitor arrivals (IVA) to Singapore rose 13.5% y-o-y.
However, despite a 14.3% y-o-y growth in IVA, non-gaming revenue only inched up by 0.7% y-o-y.
CGSI’s Tay attributes this to ongoing renovation works at Resorts World Sentosa (RWS), such as at SEA Aquarium, Universal Studios, Hard Rock Hotel and the Forum, which may have affected overall footfall and spending.
Additionally, GENS noted that a two-day closure weekly at SEA Aquarium was introduced in preparation for its expansion.
“We believe the downtime across its various attractions also contributed to the lower adjusted ebitda margin of 29.2% in 3Q24 (-20.9 percentage points (ppts) y-o-y, -6.1ppts q-o-q),” Tay adds.
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Morningstar’s Song notes that RWS will roll out Asia’s first Harry Potter: Visions of Magic experience in November 2024, and the Illumination’s Minion Land is also set to open in the 1Q2025.
As such, Song believes that GENS’s “strong focus” on premium lifestyle offerings, and ongoing development, will further strengthen its competitiveness in regional markets and boost robust sales and profit growth in the medium to long term.
Looking ahead
Given the 3QFY2024 results from GENS and MBS alongside cautious outlook from management, DBS’s Sum and Chee expect VIP rolling volume to “remain soft” heading into 2025.
However, DBS’s Sum and Chee “believe the odds are high for win rate to normalise towards 3.2% in 2025 after below trend win rate in 2024.”
“In addition, with RWS’s renovation expected to be completed in 1Q25 coupled with upcoming attractions, we believe this could drive improvement in non-gaming revenue and attract more VIP customers given higher room count,” Sum and Chee say.
As such, DBS’s Sum and Chee have cut FY2024F/FY2025F adjusted ebitda by 22% and 8%, respectively.
Given the poor performance, Sum and Chee believe that management is likely to maintain the final dividend at 20 cents, bringing GENS’s FY2024 dividend to 40 cents, as compared to their initial forecast of 45 cents.
Similarly, Morningstar’s Song has lowered her forecasts for 2024 to 2028 revenue by 4% to 10% and adjusted ebitda by 5% to 15%, to reflect the weaker-than-expected performance and a more cautious growth outlook for the VIP segment.
However, Song maintains that the shares remain undervalued as she sees multiple drivers to support GENS’s growth in the coming quarters.
CGSI’s Tay has reduced FY2024 to FY2026 earnings per share (EPS) by 10.1% to 23.8%, but remains positive on FY2025 and FY2026 outlook as new attractions are rolled out in FY2025.
CGSI’s Tay reduces his FY2024, FY2025 and FY2026 adjusted ebitda by 18.4%, 14% and 6.7%, respectively, given the near-term earnings weakness in the gaming segment and impacted margins in the non-gaming segments.
“We also believe that GENS’s strong net cash position of $3.7 billion as of 1HFY2024 will support a sustainable dividend of 4 cents per annum, translating to a modest yield of approximately 4.8%,” Tay adds.
As at 1.59pm, units in GENS are trading 0.50 cents higher or 0.64% up at 78.5 cents
