Eyes on recovery, feet on the ground
- 1H revenue and adj. EBITDA were below our/consensus forecasts, as tourism recovery is likely to pick up speed more significantly in 2H22.
- Resumed interim dividend at 1.0 Sct/share in 1H22, on guidance of generous payout ahead as GENS continues to sit on strong cash balance of S$3.3bn.
- Reiterate Add with a higher TP of S$1.04, now pegged to 10.6x FY23F EV/EBITDA (5-year mean) from 9x previously on better recovery visibility.
Recovery intact, albeit less meaningful compared to peer
1H22 revenue of S$663.1m fell short at 42.8%/39.6% of our/consensus FY22F forecasts as recovery of the tourism industry only took root in late Apr, when Singapore relaxed border control measures more significantly, supporting revenue growth of 19.5% yoy, with 2Q22 revenue growing 10.8% qoq. Adjusted EBITDA of S$268.7m in 1H22 (42.4%/36.8% of our/consensus FY22F forecasts), however, declined by 2.8% yoy, similar to the 2.5% yoy decline in 1Q22, due to rising cost pressures from higher utilities and expiry of the Job Support Scheme (JSS). The less significant recovery observed by GENS compared to its
competitor Marina Bay Sands (MBS) on a quarterly basis was noted by management to be a result of lower gross gaming revenue (GGR) market share of 35% which was partially impacted by lower rolling chip win rate of 1.5% compared to MBS’s 4.29%.
Visibility of a robust demand recovery…
Management is confident of a gradual demand recovery over the next 12-18 months. In the near term, GENS has 50 Meetings, Incentives, Conferences and Exhibitions (MICE) events planned for 2H22, about one-third of which are large-scale events (i.e. more than 1,000 pax). Further out, the tourism and hospitality industry is set to see further recovery as airlines step up efforts to reinstate capacity, which could lower airfares and further drive demand for travel.
…while playing catch-up with capacity
GENS is in the midst of ramping up its hiring efforts to cater to the robust recovery in demand. Management has shared that it is looking to add c.1.5k additional staff to the current headcount of c.5k by the end of the year, but will be closely monitoring cost pressures to strike a balance between revenue growth and profitability.
Reiterate Add with a higher TP of S$1.04
We keep our forecasts intact but peg our TP to a higher EV/EBITDA multiple of 10.6x. Although we are cognisant of near-term challenges faced by GENS to ramp up capacity, we believe that this does not detract from expectations of a better recovery in FY23F. Its strong cash balance of S$3.3bn also supports our forecasted dividend payout of 2.5 Scts per share for FY22F (FY21: 1.0 Scts). Re-rating catalysts include the swifter reopening of borders in North Asia and higher-than-expected dividend payout; downside risks include thinning margins and higher-than-expected costs for its Resorts World Sentosa (RWS) 2.0 project.
