Genting Singapore: Earnings fall short, dividends shine
- 2Q24 adjusted EBITDA dived 23% y/y and 46% q/q; 1H24 adjusted EBITDA formed 49%/47% of consensus/DBS’s full-year estimate, missing expectations
- Lower VIP win rate, higher bad debt losses, seasonality and less hotel room inventory led to weaker performance
- Trimmed FY24/25F adjusted EBITDA by 4-5% and lifted FY24F dividend to 4.5Scts
- Maintain BUY but with a lower TP of SGD1.05 to factor negative earnings revision and sector multiple contraction
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An acute decline in GENS’s VIP win rate (2.9% in 2QFY24 versus theoretical hold of 3.3%, 4.6% in 1QFY24, and 4.0% in 2QFY23) and increased bad debt losses (1HFY24: SGD101.1mn, +10% h/h, +213% y/y) led to the group’s underperformance during the period. Weaker sequential results in 2QFY24 was partly driven by seasonality, with tourist arrivals lower by 11% q/q. While mass gaming volumes were largely stable q/q, VIP rolling volumes fell sharply by 26% q/q (though GENS’s market share in the VIP segment remained stable against MBS), driving a steep 34% drop in net gaming revenue q/q in 2QFY24. Meanwhile, non-gaming revenue was flat y/y but dipped by 9% q/q in 2QFY24 due to the lack of contribution from Hard Rock Hotel, largely meeting expectations.
Adjusted EBITDA margin shrank to 35.2% in 2QFY24, versus 47.1% in 1QFY24 and 43.8% in 2QFY23, as the lower VIP win rate and higher bad debt losses were partly offset by better operating cost control, with labour and utility costs as a percentage of revenue improving to 20%/2% in 1HFY24, down from 23%/3% in 1HFY23, respectively. Notably, bad debt losses are currently at a higher run-rate compared to 2019, despite VIP volumes yet to normalise, suggesting an increased risk appetite by the group to court VIP gamblers.
1HFY24 interim dividend of 2.0Scts was a pleasant surprise, representing an increase from 1.5Scts in 1HFY23 (which was our 1HFY24 estimate as well), and higher compared to the payout in 1HFY19 with 1HFY24 net profit nearly reaching pre-pandemic levels.
FY24/25F adjusted EBITDA estimates cut by 4-5%; maintain BUY with lower TP of SGD1.05. Inbound tourist arrivals have started to soften after solid momentum in 1QFY24, and we believe consumer sentiment towards discretionary spending may turn cautious due to the uncertain macroeconomic environment. Hence, we trim our FY24/25F adjusted EBITDA estimates by 4-5% to reflect a higher run-rate of bad debt losses (around SGD50mn per quarter versus SGD40mn previously) and slightly lower growth in gaming volumes. Accordingly, our TP is reduced to SGD1.05 as we roll forward our EV/EBITDA peg to 7.8x.
Raise FY24F DPS estimate given scope for more positive surprises on shareholder returns. With interest rates likely to trend lower from hereon, and the share price at current levels, there are fewer benefits to maintaining such a substantial net cash position (Jun-24: SGD3.7bn) and the management could be more motivated to return more capital to shareholders. GENS shared that they were initially hesitant to payout more dividends as they were concerned that they would exceed their budget for RWS2.0 given the increase in construction costs (labour + materials) but having recently concluded their tender exercise for the project, this concern has been alleviated.
Management has guided that barring any unforeseen circumstances, FY24 final dividend will at least match that of FY23, but we believe there could be upside due to the aforementioned reasons. Hence, we raise our FY24F DPS estimate to 4.5Scts per share, up from 4.0Scts previously, and are now more confident in our FY25F projection of 5.0Scts per share. These figures translate into dividend yields of 5.5-6.0%, which is certainly attractive compared to other gaming counters, and on-par with other high-yielding stocks in the SG market. This should also provide some support to its share price, in our view.
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