Comprehensive Analysis of Genting Singapore and its Competitors

Date of Report: 11 November 2024

Broker: OCBC Investment Research

Genting Singapore: An In-Depth Company Update

Genting Singapore (GENS) is a key player in the development and operation of integrated resort destinations, encompassing gaming, hospitality, meetings, leisure, and entertainment facilities. The company owns Resorts World Sentosa (RWS) in Singapore, a premier destination resort in Asia.

Investment Thesis

GENS stands to benefit from Singapore’s tourism recovery, buoyed by the recent visa exemption agreement between Singapore and China and the normalisation of flight capacity and airfares. Despite the ongoing refurbishments in 2024, new offerings such as RWS 2.0 are expected to drive stronger growth from 2025.

Investment Summary

The gaming segment’s weak performance significantly impacted GENS’ 3Q24 results, missing both internal and Bloomberg consensus expectations. Revenue fell by 19% year-on-year, dragged down by a 28% decline in the gaming segment due to weak VIP rolling volume and win rate. Non-gaming revenue saw a modest 1% increase, hindered by renovation works at Hard Rock Hotel and S.E.A. Aquarium’s expansion. Adjusted EBITDA and net profit dropped 53% and 63% year-on-year to SGD163.9m and SGD79.4m, respectively. The quarter-on-quarter performance also saw declines in adjusted EBITDA and net profit by 19% and 27%, respectively. The unfavourable VIP win rate of 2.45% versus the theoretical 3.3% was a significant factor, reducing adjusted EBITDA by SGD55m for the quarter.

Security Information

• Ticker: GENS.SI
• Market Cap: SGD 9.6 billion
• Daily Turnover: SGD 24.2 million
• Free Float: 47%
• Shares Outstanding: 12,073 million
• Top Shareholder: Genting Bhd 52.5%

Fair Value Estimate

We revised our fair value estimate for GENS to SGD1.03, down from SGD1.17, following the company’s weaker-than-expected results for 3Q24. The development of new attractions, such as Universal Studios Singapore’s Illumination’s Minion Land, is on track for a first-quarter 2025 opening. We anticipate stronger performance from 2025 with the introduction of new non-gaming amenities, though the gaming segment will likely remain competitive and challenging.

ESG Updates

In October 2024, GENS received an ESG rating upgrade. The company’s casino resort operations are water-intensive, posing potential risks related to increased costs. Geographic exposure scores were revised based on the latest country-level water stress data from WRI’s Aqueduct, leading to an upgrade. The company has set targets to reduce municipal water withdrawal intensity by 30% by 2030 (versus 2015), achieving a 39% reduction in 2023. GENS has robust responsible gaming programs, including self-exclusion and spend limit measures, supported by annual staff training and audit programs. Governance practices are average compared to global peers, with improvements noted in board participation by non-executive directors and executives by September 2024.

Potential Catalysts

• Stronger-than-expected growth in VIP and premium mass volumes
• Faster-than-expected recovery

Investment Risks

• Weaker-than-expected growth in VIP and premium mass volumes
• Implementation of travel restrictions
• Potential cost overruns

Valuation Analysis of Competitors

Company Overview

Genting Singapore PLC was incorporated in 1984 in the Isle of Man and became a public limited company on 20 March 1987. It has been listed on the Main Board of the Singapore Exchange Securities Trading Limited since 12 December 2005. As a constituent stock of the FTSE Straits Times Index, Genting Singapore is one of the largest companies in Singapore by market capitalisation.

The principal activities of Genting Singapore and its subsidiaries include the development, management, and operation of integrated resort destinations. The company owns Resorts World Sentosa in Singapore, an award-winning destination resort and one of the largest integrated resort destinations in Asia. RWS offers a range of attractions, including a casino, Adventure Cove Waterpark, S.E.A. Aquarium, Universal Studios Singapore theme park, MICE facilities, hotels, Michelin-starred restaurants, and specialty retail outlets.

Financial Summary

Key Ratios

• EV/Adj. EBITDA (x): 5.8 (FY23), 6.6 (FY24E), 6.3 (FY25E)
• P/BV (x): 1.2 (FY23), 1.2 (FY24E), 1.1 (FY25E)
• Adj. EBITDA Margin (%): 40% (FY23), 40% (FY24E), 40% (FY25E)
• Dividend Yield (%): 4.4% (FY23), 5.1% (FY24E), 5.1% (FY25E)

Company Financials

Profitability Ratios

• Return on Common Equity: 8.70% (FY19), 0.87% (FY20), 2.33% (FY21), 4.28% (FY22), 7.55% (FY23)
• Return on Assets: 7.24% (FY19), 0.77% (FY20), 2.09% (FY21), 3.87% (FY22), 6.82% (FY23)
• Operating Margin: 31.70% (FY19), 6.69% (FY20), 19.48% (FY21), 23.59% (FY22), 26.34% (FY23)
• Pretax Margin: 34.14% (FY19), 10.62% (FY20), 21.20% (FY21), 26.47% (FY22), 32.13% (FY23)

Credit Ratios

• Total Debt/EBIT: 0.33 (FY19), 3.75 (FY20), 1.19 (FY21), 0.01 (FY22), 0.00 (FY23)
• Net Debt/EBIT: -4.69 (FY19), -52.36 (FY20), -14.80 (FY21), -8.50 (FY22), -5.66 (FY23)
• EBIT to Interest Expense: 41.12 (FY19), 30.64 (FY20), 43.99 (FY21), 118.40 (FY22), 687.07 (FY23)
• Long-Term Debt/Total Assets: 2.77% (FY19), 2.99% (FY20), 0.06% (FY21), 0.03% (FY22), 0.01% (FY23)
• Net Debt/Equity: -45.75% (FY19), -47.57% (FY20), -38.99% (FY21), -43.24% (FY22), -43.97% (FY23)