4QFY23 below expectations due to sharp increase in bad debt losses; medium-term prospects remain bright
- 4QFY23 adjusted EBITDA below expectations due to a significant increase in bad debt losses; revenue in-line
- Final dividend of 2.0Scts per share fell short of our expectation of 2.5Scts,
- Trim FY24/25F estimates by 0-3% to impute higher run rate of bad debt losses
- Maintain BUY with higher TP of S$1.15 as we raise our valuation peg to reflect our optimism on GENS’s medium-term growth trajectory
4QFY23 trailed expectations due to a spike in bad debt losses; overall business momentum remains sound. GENS reported an adjusted EBITDA of S$228m for 4QFY23 (-34.0% q-o-q, -9.8% y-o-y), with full-year adjusted EBITDA of S$1,026m, which was 5.5% below the consensus’ full-year estimate of S$1,085m. While revenue met expectations at S$2,418m, an unforeseen surge in bad debt losses to S$92m in 2HFY23 (primarily recorded in 4Q23) led to the steep decline in earnings. Total revenue in 4QFY23 grew by 19.3% y-o-y to S$647m, reaching 107% of 4QFY19 levels. Both gaming and non-gaming segments exhibited strong y-o-y growth of 18.7% and 21.0%, respectively, fuelled by a favorable luck factor (VIP win rate of 3.6% for the quarter), increased footfall, and higher average spending per visitor. The 6.2% q-o-q revenue moderation aligns with seasonal trends, as tourist arrivals typically peak in Q3, while Q4 is also a peak season for outbound travel among Singaporeans.
Ongoing phased renovations and upgrades across hotels, F&B outlets, attractions, and the casino are expected to drive medium-term growth; maintain BUY with higher TP of S$1.15. Key completions in 2025 include the revamped Forum area, Minion Land at Universal Studios, and the Singapore Oceanarium, with new attractions to be introduced annually until 2029. Tenders for the new waterfront development, housing 700 hotel rooms, have been issued, with construction contracts expected to be awarded in 3QFY24. Despite the potential normalisation in VIP win rates and refurbishment of the Hard Rock hotel adversely impacting 2024, the debut of Hotel Ora in 2023, and a vibrant schedule of events should continue to drive tourist arrivals (still 29% below 2019 levels in 2023) and increase visitation to RWS. The visa-free travel extension for Chinese tourists is also a positive development, with early 2024 showing a noticeable uptick in visitors from China. Our FY24/25F adjusted EBITDA estimates remain mostly unchanged, as stronger expected top-line growth offsets an increased bad debt loss projection. We raise our target price to S$1.15 as we lift our EV/EBITDA peg to 9.0x FY24F, up from 8.3x FY24F previously, to factor in our optimism on GENS’s medium-term growth prospects.