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3Q21 missed expectations, but recovery trajectory is clearer

  • 3Q21 adjusted EBITDA below expectations
  • Near-term performance may remain lackluster due to extended COVID-19 restrictions and soft inbound tourism
  • However, we still anticipate a more pronounced recovery in 2HFY22F
  • Maintain BUY with unchanged TP of S$1.00

Investment Thesis: 

Domestic market can provide some support to GENS as we await the return of international tourists. GENS’s strong performance over the past few quarters demonstrates the resilience of domestic gaming demand, giving us confidence that the it can at least churn core EBITDA (excluding JSS) of S$75-100m on a quarterly basis in the absence of tourists. 
 
Well positioned to recover with the implementation of more vaccinated travel lanes. We expect international tourism (which accounted for 75-80% of pre-COVID19 attendance at RWS) to stage a recovery from early-mid 2022, giving a significant boost to GENS’s earnings in FY22F. 

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Valuation is undemanding vs peers. GENS is currently trading at around 9.5x FY22F EV/EBITDA, which is about 0.1 standard deviation (sd) above its five-year average, cheap, considering its swift EBITDA recovery trajectory. Additionally, GENS trades at a discount to the regional sector average of 8.1x.

Valuation:

Our target price (TP) of S$1.00 is based on a blended valuation framework of (i) forward EV/EBITDA  of 11.0x on FY22F estimates, +1sd above its five-year average and (ii) discounted cash flow (DCF), assuming 7.5% WACC, 9.0x terminal EV/EBITDA multiple.

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Where we differ:

Our FY22F and FY23F EBITDA estimates are slightly below consensus, as we expect mass travel to take longer to normalise.

Key Risks to Our View:

The COVID-19 pandemic situation being prolonged beyond our expectations or travel activity in the region taking longer than anticipated to normalise.