Surpassing pre-Covid-19 profit levels
- GENS reported adj. EBITDA of S$345.4m for 3Q23, c.30% above our forecast of c.S$260m and 3Q19’s (pre-Covid-19) S$278.0m.
- Given SG’s tourist arrivals in 3Q23 were only at 77.2% of 3Q19 levels, we think a run-rate of c.S$300m adj. EBITDA per quarter is sustainable.
- Reiterate Add; TP unchanged at S$1.30 on 10x FY24F EV/EBITDA (5-year mean) as we see GENS benefitting from further recovery in tourist arrivals.
Building on strong seasonality momentum in 3Q23
GENS’ 9M23 adj. EBITDA of S$797.8m (+49.7% yoy) was a convincing beat at 79.5%/80.6% of our/Bloomberg consensus’ FY23F estimates, driven by a combination of strong revenue growth and margin expansion in 3Q23. We expect 4Q24F revenues and adj. EBITDA to ease due to the increase in flights into other popular holiday destinations, such as Japan.
Gaming revenues surpass pre-Covid-19 levels
Gaming revenue grew 20.3% yoy/12.9% qoq to S$459.6m, which was 20.3% higher than pre-Covid-19 levels. In its announcement, GENS shared that its hold-normalised (adjusted for win rate) gross gaming revenue (GGR) increased 31% qoq to S$715.2m in 3Q23 and exceeded pre-Covid-19 levels for both VIP and mass gaming GGR, suggesting that win rates were more normalised in 3Q23 compared to 2Q23.
Non-gaming revenue catching up
Non-gaming revenues grew 26% qoq to S$230.1m, reaching 98.1% of pre-Covid-19 levels. GENS noted that this was a result of higher foreign visitor arrivals as well as higher customer spend during the summer holiday season. We see continued upside to nongaming revenues, given YTD tourist arrivals of 11.3m as of end-Oct were only 71.1% of the corresponding period in 2019. The opening of Hotel Ora in May 23, which added 389 keys, also contributed to the growth of non-gaming revenues, in our view.
Positioning itself for the changing Singapore tourism landscape
We think that GENS’s strategy to premiumise its offerings is paying off, given 3Q23’s profitability surpassing 3Q19’s despite Singapore seeing 20% lower tourist arrivals. This also suggests that the Singapore tourism landscape has shifted towards attracting a greater proportion of wealthier tourists, which justifies its revised S$6.8bn capex budget over the next 8 years (see next page), in our view.
Reiterate Add; TP unchanged at S$1.30
We revise our FY23F adj. EBITDA upwards by 7.0% on stronger revenue momentum, while adjusting FY24F-25F’s estimates lower by 0.6%-2.8% to adjust for lower tourist arrivals. Our TP is pegged at 10x FY24F EV/EBITDA (5-year mean), reflecting a normalised profitability profile. Re-rating catalysts include higher dividends. Downside risks include a recession resulting in lower spend per tourist and gaming market share loss.