SINGAPORE (Feb 22): Maybank Kim Eng, OCBC Investment Research, RHB Research and CGS-CIMB Research are maintaining their “buy” calls on Genting Singapore (GENS) with the respective target prices of $1.26, $1.31, $1.22 and $1.28.
This comes after GENS’s latest set of FY18 financials fell slightly short of, or came in at the lower-end of the first three research houses’ expectations as they did consensus estimates, even as the group’s full-year earnings grew 10% to $755.4 million from $685.6 million a year ago.
In a Friday report, Maybank analyst Yin Shao Yang says he has trimmed core net profit estimates by 8% per annum due to higher depreciation & amortisation (D&A) forecasts, as GENS’s FY18 earnings came in at the lower-end of expectations due to higher-than-expected D&A.
Nonetheless, he continues to project a modest FY19 RWS VIP volume growth of 5% y-o-y, and RWS mass market gross gaming revenue (GGR) growth of 5% y-o-y, as opposed to FY18’s 23% and 2% growth, respectively.
“Investors ought to buy GENS to ride on its Resorts World Sentosa (RWS) renovation/expansion plan that will be released in 1H19 and potential expansion into Japan, where bidding will begin in 2H19,” says Yin.
Likewise, OCBC’s Carmen Lee continues to see value in the stock as at its Feb 21 closing price of $1.11 – although she notes that impairment of trade receivables has been increasing sequentially since 1H18, and has lowered her FCFE-based fair value estimate to $1.31 from $1.39 previously after making adjustments accordingly.
“Going forward, management plans to exercise caution in extending credit to VIP customers. While we keep an eye on macro-economic certainties ahead and the potential impact on gaming revenues, we see value in the stock as at 21 Feb’s closing price [of $1.11],” says the analyst.
RHB has trimmed FY19-21 projections by 7-11% after imputing a more conservative VIP growth assumption in view of regional competition; higher depreciation cost; and higher provisions for trade receivables.
The research house nonetheless remains positive on GENS for its credit extension strategy and marketing efforts, which it believes has led to a gain in VIP market share and supported the group’s topline growth, mainly driven by customers from Southeast Asia.
Going forward, it expects the group’s market share to be sustained at current levels, considering its increased prudence in granting credit to VIP players.
“As the group incurs higher depreciation cost moving forward, we believe this signals that its RWS rejuvenation plans are around the corner,” says RHB.
Meanwhile, CGS-CIMB analyst Cezzane See’s high-conviction “add” call comes after raising FY19-20F earnings per share (EPS) by 6.4-8.8%, as the group's FY18 earnings came in line with estimates.
Her unchanged target price of $1.28 is now based on 9 times EV/EBITDA as she rolls forward to CY20F, which is close to the stocks’ five-year historical mean of 9.3 times.
Despite ongoing global uncertainty, See believes GENS’ earnings will remain steady in FY19 considering its management’s strategy to selectively keep its credit lines open, as well as positive sentiment on additional room capacity at new hotels to open at Sentosa, which could result in more footfall and in turn, benefit RWS.
“Potential re-rating catalysts are higher gaming revenues and margins. Downside risks are lower gaming revenues, higher trade receivable provisions and failure to secure any Japan opportunities,” says See.
Shares in GENS were down by 4 cents at $1.07 before the midday trading break, or 1.54 times FY19 book value according to Maybank estimates.
