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<DBS Sales Takeaways> Genting investor call

Sales take: Patience needed for business to return to normalcy which appears to be in 2022 (late-1H22 maybe..) and hopefully not later. During this lull, it is encouraging to hear that company is actively digitizing and investing in other cost initiatives to rationalise its cost structure while refining its products at the same time to capture better yield. Such a two-prong strategy is working towards increasingly positive jaw overtime. The company should enjoy a strong earnings rebound when tourists finally return given the high degree of operating leverage inherent in the business.RW2.0 plan remains intact but more a positive booster for the long term. GENS has rebounded some 14% from recent low. At 8.5x EV/EBITDA, the stock is inexpensive but could likely trade rangebound or only creep slowly upwards with optimism on easing traveling restrictions. There is a lack of strong catalyst to direct the stock meaningfully near term.

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Near term prospects
VTL is encouraging but due to restricted capacity, the return of tourist arrivals would still be gradual. Therefore, GENS will stay focus on domestic patronage and enhance their product offerings to drive up yields. GENS recently did a pilot during Halloween, and charged S$248 per ticket for a premium event instead of the usual S$80-90.

The recently added VTL countries, Msia, Indonesia and India are traditionally key markets, which should bode well for GENS. Long haul destinations in the US and Europe are fairly new to Genting, but the company has channelled some of its marketing to these regions.

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Life after Yokohama…
The appointment of a non-pro gaming mayor is surprising and unfortunate for the Genting team as they have put up a very compelling IR proposal. Moving on, GENS will continue to scout for any new gaming markets. Nothing concrete as of now, but Japan remains their core focus as it would be an ideal addition to their portfolio.

As for returning excess cash to shareholders in the form of higher dividends or share repurchases, a fair portion of the current S$3.2bn of cash is earmarked for RWS2.0, the remainder will depend on whether they are able to identify promising new opportunities.

RW2.0 plan
S$4.5b commitment unchanged but execution of the RW2.0. plan has been delayed due to COVID. Looking to start construction work end of 2022, which is 2-3years delay from the original timeline. Expansion will add 1-2k keys, Aquarium will be 2-3x bigger and there will be more experiences in the theme park. GENS is creating more premium experiences for upselling to enhance yield per customer.
GENS has not begun conversations on the potential extension of gaming exclusivity or delays on gaming tax hikes with the government.

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Business strategy
China’s clampdown on VIP gamers has been concerning for gaming companies in the region. Fortunately, GENS has been moving away from the Chinese market over the past few years, and was already marketing to ex-China markets even before pre-covid. Focus has been to cultivate premium mass in Indonesia, Vietnam and Malaysia. Overall, Covid has prompted GENS to rethink their strategy and to sharpen their focus to generate higher yielding product for key source markets.

Operating margins
Operating margins could decline in the near-term on lower government subsidies and gaming tax hike. Therefore, the company is looking to defend profitability through improved productivity to cut costs and enhanced customer experience to boost average spending per customer.
GENS has been rationalising manpower and streamlining operations to manage expenses and leveraging on automation and digitalising as early as 2020. Facial recognition technology are deployed in casinos to replace manual security guards and now, they are moving these technologies on to gaming floors to 1. reduce human supervision and 2. better study of customer trends for GENS to enhance customer experience.

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Will staff strength return to pre-covid level?
Current staff strength is 20-25% down from pre-COVID level of about 7-8,000. Do not foresee staff strength returning to pre-covid level given that automation will drive efficiencies. For example, GENS recently implemented face recognition technology in the front of the house, enabling customers to enter without the need for a security guard. The company is also experimenting new technology on the casino floor as well, so they can reduce the amount of manpower that is required.