FY24F a year of refurbishments
- FY23 hold-adj. EBITDA of S$1.06bn was in line with expectations at 98.7%/99.7% of our/Bloomberg consensus’ FY23F estimates.
- We reduce our FY24F/25F adj. EBITDA by 9.5%/3.9% to account for higher credit impairment and lower hotel key inventory in FY24F.
- ReiterateAdd as we see FY24F growth driven by further recovery in tourism; TP of S$1.30 unchanged, now pegged at 9.4x FY25F EV/EBITDA.
Weaker seasonality in 4Q23 was within expectations
GENS’s 4Q23 revenue declined 6.2% qoq (gaming: -4.0% qoq; non-gaming: -7.7% qoq) due to lower visits to Resorts World Sentosa (RWS). In particular, management cited the strong Singapore dollar index, persistently high airfares and accommodation costs as well as the slower recovery of Chinese outbound travel as factors that impacted non -gaming revenue. On the other hand, 4Q23 adj. EBITDA declined 34.2% qoq to S$227.2m, due to higher impairment recorded during the quarter, which management shared was a result of increasing contribution from its VIP gaming segment, which partially run s on a credit basis.
First signs of continued tourism recovery in Jan-Feb 24…
Management shared during its analyst briefing held on the evening of 22 Feb 24 that RWS saw an uptick in Chinese tourists during the Lunar New Year period, which corroborates with Singapore’s international visitor arrivals in Jan 24, which saw visitors from China grow more than 60% mom to 211,194. With the rollout of the mutual 30-day visa exemption between Singapore and China, we could see a further recovery of Chinese tourists supporting more visits to RWS. Singapore received 3.6m Chinese tourists in 2019.
… but pace of earnings growth to moderate due to refurbishments
RWS will be closing Hard Rock Hotel for renovations starting from 2 Mar 24, which will reduce RWS’s room inventory by c.460 keys. This could limit RWS’s capacity to cater to longer-stay visitors that tend to have higher spending. GENS is targeting renovation works at Hard Rock Hotel to be completed by end-2024. Non-gaming revenue growth in FY24F may also be limited by other ongoing works for the Singapore Oceanarium, Minion Land within Universal Studios Singapore, as well as the Forum, which are all targeted to open in early 2025, given the lack of new attractions in FY24F, in our view.
Reiterate Add with an unchanged TP of S$1.30
We introduce our FY26F estimates and roll forward our valuation, pegged at 9.4x FY25F EV/EBITDA, slightly lower than its five-year mean of 9.7x given our expectation of tapering earnings growth in FY24F. We cut FY24-25F EPS due to higher credit impairment and lower hotel room availability in FY24F. Nevertheless, we reiterate Add with an unchanged TP of S$1.30 as we believe GENS will continue to benefit from a recovery in Singapore’s tourism industry. Re-rating catalysts: strong tourism growth and earlier-than-expected completion of ongoing renovation works. Downside risks: recession resulting in lower spend per tourist and loss of gaming market share.
