Brokers’ digest
Genting Singapore, which runs the integrated resort and casino Resorts World Sentosa (RWS), is headed for a slow recovery after shutting for two months in a “wash-out year”, according to analysts from UOB Kay Hian, who have downgraded their call on this stock to “hold” with an unchanged target price of 80 cents.
“We gauge that 2020 will be a wash-out year as 1H2020 earnings will take a heavy toll from plunging hotel occupancy rates and gaming revenues before the lockdowns, and zero revenue during the temporary closures in the lockdown periods.
“A slow recovery is expected, with impediments on international travel into Singapore and reduced gaming capacity,” say analysts Vincent Khoo and Jack Goh in their July 2 report.
RWS was shut from Apr 7 to July 1, owing to the “circuit breaker” measures introduced to curb a sharp rise in the number of Covid-19 infections in Singapore. For the 1QFY20 ended March, Genting Singapore reported earnings of $148.9 million, some 55% lower y-o-y.
Despite the reopening, entry to casinos is currently limited to Genting Reward members and annual levy holders only. The slow recovery is limited by RWS’ heavy reliance on foreign tourists and Singapore’s safe distancing rules, which force the RWS casino to operate at just a quarter of its capacity.
For FY2020–2021, UOB Kay Hian has cut its earnings forecast by 49% and 9% respectively “as the duration of the lockdowns in Singapore have stretched beyond initial expectation[s]”. The reduced capacity is also expected to contribute to lingering uncertainty in 2H2020, with the region’s airline and tourism restrictions still up in the air.
Gamble in Japan
Analysts are also wary of the company’s pursuit of integrated resort (IR) bids in Japan, noting the high capex commitment involved and the withdrawal of large US bidders such as Las Vegas Sands, citing nonviable regulatory framework like an entrance fee for locals and a limit on gaming floor space to not more than 3% of the total area.
Japan legalised plans to build three IRs back in July 2018. Now touted as a way to restart its ecocomy after lockdowns due to Covid-19, the prefectures of Osaka, Yokohama, Nagasaki, Wakayama and Tokyo are vying to land one of three multibillion-dollar complexes on their turf.
Yokohama’s Request for Proposal (RFP) process will start in August after the federal government’s basic policy is finalised and the results will be known at the year-end. Genting Singapore will also participate in Tokyo’s bid when it is rolled out, said UOB Kay Hian.
Selected operators will submit their proposals to the federal government in 2H2021, with openings slated for 2026. Analysts noted that Japan’s current IR window term of five years is difficult for operators to realise return on investments as the payback period for large IRs is seven to nine years.
“Should [ Genting Singapore] win the Japan bid, we may have to review our post-2020 dividend assumptions, given the deteriorating near-term cashflow outlook, hefty RWS 2.0 capex and capital commitment for the Japan IR,” note the UOB Kay Hian analysts.
Within this year and the next, there are hopes for better arrival numbers following the reopening of borders to neighbouring countries with relatively lower Covid-19 cases, such as Malaysia, Brunei, Australia, New Zealand, Macau, Taiwan and Vietnam.
“Successful lifting of travel restrictions would drive up RWS’ earnings, given its high dependency on foreign visitors. This could signify a potential recovery of up to 80% of pre-Covid-19 tourist arrivals.” —