SHARES of Genting Singapore : G13 +10.59% jumped as much as 11.8 per cent in heavy trading on Tuesday morning (Nov 14), after its third quarter results released on Friday beat analyst expectations.

 

Analysts have raised their target prices on the integrated resort operator, with DBS Group Research upgrading its recommendation on Genting Singapore to &ldquo buy&rdquo from &ldquo hold&rdquo .

 

The counter climbed to a three-month high of S$0.95 at 10.32 am. By 1.10 pm, the group&rsquo s shares were the second-most traded by volume with 99.6 million shares changing hands. Genting Singapore was up 10.6 per cent or S$0.09 to S$0.94 by then.

 

On Friday, the group posted a net profit of S$216.3 million for the third quarter ended September, up 59 per cent from S$135.8 million in the corresponding year-ago period. This came as revenue rose 33 per cent, with both gaming and non-gaming revenue recording gains.

 

In a report released on Tuesday, DBS Group Research upgraded Genting Singapore to &ldquo buy&rdquo from &ldquo hold&rdquo and raised its target price to S$1.05 from S$1.

 

The research team noted that Genting Singapore&rsquo s share price declined by 15 per cent to 20 per cent since its last downgrade to &ldquo hold&rdquo and it now finds the group&rsquo s risk-to-reward profile attractive, despite potential concerns over its longer-term return on capital.

 

DBS&rsquo upgrade comes as the group plans to invest around S$6.8 billion, from internal resources, to develop Resorts World Sentosa further as a tourism destination.

 

&ldquo Although Genting has the financial capability to support this investment through its strong net cash position and robust cash flow generation, we believe this could negatively impact the company&rsquo s capacity for capital distribution to shareholders,&rdquo it said in a report.

 

Furthermore, the company has yet to alleviate concerns over the return on investment on these projects, which are expected to be &ldquo relatively modest&rdquo compared to historical returns on capital, DBS said.

 

However, it believes any risks from the substantial rise in projected capital expenditure have been adequately priced into Genting Singapore&rsquo s share price.

 

DBS&rsquo new target price implies a potential upside of 11.7 per cent from the counter&rsquo s trading price at 1.10 pm on Tuesday. It noted that Genting Singapore is still trading at one standard deviation below its five-year pre-pandemic average, despite its solid medium-term earnings outlook.

 

The group is renovating its Forum shopping area in RWS and expects to launch new attractions such as Minion Land and the Oceanarium in early-2025.

 

DBS has raised its earnings before interest, taxes, depreciation and amortisation (Ebitda) forecast for FY2023 by 12.6 per cent to account for a stronger-than-anticipated recovery in the group&rsquo s gaming segment and improved cost control. Its FY2024 estimate, meanwhile, is up 2.4 per cent.

 

Similarly, CGS-CIMB has upped its FY2023 adjusted Ebitda estimates by 7 per cent on stronger revenue momentum for Genting Singapore. However, it lowered its FY2024 to FY2025 estimates by 0.6 per cent to 2.8 per cent after adjusting for reduced tourist arrivals.

 

The research team reiterated its &ldquo add&rdquo recommendation on the counter and unchanged target price of S$1.30, implying a 38.3 per cent upside.

 

In a separate report, Maybank Singapore raised its target on Genting Singapore to S$1.16 from S$1.12, implying a potential 23.4 per cent upside. It maintained its &ldquo buy&rdquo call on the counter and also raised its core earnings per share estimates for FY2023 to FY2025 on higher VIP volumes.

 

The group&rsquo s core net profit for the third quarter and nine-month period beat its expectations, as did Q3 VIP volume, which was 55 per cent higher than anticipated.

 

Based on its records, it estimates that Q3 VIP volume was at its highest since Q2 2015 and now assumes an average quarterly VIP volume of S$10 billion from S$7.3 billion previously.

Genting Singapore' s $6.8 billion expansion spend, announced by the company on Nov 10, far exceeds the $5 - $5.5 billion capex projected by DBS Group Research.

 

In its Nov 11 note, DBS acknowledges that Genting Singapore G13 0.00% has the financial capability to support this investment through its strong net cash position of more than $3 billion and robust cash flow generation.

 

However, DBS believes this could negatively impact the company&rsquo s capacity for capital distribution to shareholders. 

According to DBS, which describes the increase in capex as " alarming" , Genting Singapore has yet to alleviate concerns that the returns from its planned expansion will be relatively modest compared to its historical return on capital. 

 

As such, despite its 3QFY2023 earnings also announced on Nov 10 has exceeded expectations, the market may view this update negatively, says DBS, which has put its " hold" call and $1 target price under review.

 

Under what has been dubbed RWS2.0, Genting Singapore will spend at least $4.5 billion to expand and upgrade its Resorts World Sentosa in return for an extension of the gaming exclusivity licensing from the government.

 

Marina Bay Sands, the other IR operated by Las Vegas Sands Corp, has a similar expansion plan on-going. The expansion-for-exclusivity deals were announced together back in the pre-pandemic April 2019. 

 

At the company' s AGM on April 19, Genting Singapore CEO Tan Hee Teck had explained the need to refresh and expand the resort.

 

&ldquo We must reposition ourselves by catering to the wealthier market segment of visitors. We have to transform ourselves to be a better product,&rdquo says Tan. &ldquo This $4.5 billion has to be funded from somewhere,&rdquo adds Tan, when asked why didn' t Genting Singapore pay higher dividends than the three cents it declared for the whole of FY2022.

 

For the three months to Sept 2023, Genting Singapore reported earnings of $216.3 million, up 59% y-o-y. Ebitda, in the same period, was up 37% y-o-y to $346.1 million while revenue was up 33% y-o-y $689.9 million.

 

DBS notes that revenue and ebitda have reached 115% and 124%, respectively, of the levels of the pre-pandemic 3Q19, despite attendance not yet fully rebounding, with Singapore&rsquo s tourist arrivals for the quarter at just 77% of the pre-pandemic figures. 

 

" This suggests a substantial increase in the average spending per visitor at RWS. 3QFY2023 also marks the first instance of Genting Singapore reporting gaming volumes and ebitda that surpass pre-pandemic figures, a milestone Marina Bay Sands had previously achieved in 1Q23," adds DBS, noting that Genting Singapore had gained gaming revenue market share, reaching 33% in 3QFY2023 versus 30% in 1QFY2023. 

 

" We expect Genting Singapore' s earnings growth to continue in the short term, bolstered by increased tourist arrivals and the early 2025 soft launches of the Forum' s transformation, Minion Land at USS, and the Singapore Oceanarium," adds DBS.

 

On the other hand, CGS-CIMB' s Tay Wee Kuang is more upbeat at this counter. 

 

" We think that Genting Singapore' s strategy to premiumise its offerings is paying off, given 3Q23&rsquo s profitability surp assing 3QFY2019&rsquo s despite Singapore seeing 20% lower tourist arrivals. 

 

" This also suggests that the Singapore tourism landscape has shifted towards attracting a greater proportion of wealthier tourists, which justifies its revised $6.8 billion capex budget over the next 8 years," says Tay, who has kept his " add" call and $1.30 target price.

 

For Citi Research' s George Choi and Ryan Cheung, Genting Singapore' s 3QFY2023 results was a " solid beat" , prompting them to raise their earnings forecast for FY2023 to FY2025 by 1 and 13%.

 

However, to take into account the higher capex of $6.8 billion, they have trimmed their target price from $1.26 to $1.20 while keeping their " buy" call.

 

Choi and Cheung estimate that Genting Singapore has already spent some $1.6 billion to date and that investors have already priced in the increase in capex.

 

They note that Genting Singapore is trading at around 5.7x FY24E EV/EBITDA, which is more than 1 s.d below its historical average of around 7.9x. 

 

" We still like the stock as we believe Resorts World Sentosa is one of the major beneficiaries from the return of inbound visitors," note Choi and Cheung in their Nov 13 report.

 

A possible dividend hike from 3 cents paid for FY2022 to 4 cents for FY2023 is another reason for investors to buy this stock, they add.

GENTING Singapore on Friday (Nov 9) posted a net profit of S$216.3 million for the third quarter ended September, up 59 per cent from S$135.8 million in the corresponding year-ago period.

 

Revenue was up 33 per cent to S$689.9 million for the quarter, from S$519.7 million a year ago. Of this, revenue from its gaming segment rose 20 per cent on the year to S$459.6 million, while non-gaming revenue jumped 68 per cent to S$230.1 million.

 

On a hold-normalised quarterly basis, gaming revenue improved 31 per cent quarter-on-quarter to S$715.2 million, exceeding pre-Covid levels in 2019 for both VIP and mass gaming segments, the group said in its quarterly business update.

 

Non-gaming revenue improved 22 per cent quarter-on-quarter to S$230.1 million, which the group attributed to increased foreign visitor arrivals and higher customer spend during the summer holiday season.

 

Genting also said that Resorts World Sentosa (RWS), which is wholly owned by the group, has &ldquo continued to benefit from the sustained recovery of travel and tourism&rdquo .

 

It announced that its board has approved a total investment of around S$6.8 billion to develop RWS further as a tourism destination. The investment will be funded through internal resources.

 

Its plans to develop a new waterfront complex at RWS &ndash comprising 228,658 square feet of retail space, and 700 hotel rooms &ndash has also received provisional permission from the government, with construction set to commence in 2024.

 

The group also gave updates on the status of three projects: the transformation of The Forum shopping area in RWS, the development of a new Minion Land attraction in Universal Studios Singapore, and the rebranding of SEA Aquarium to the Singapore Oceanarium. All three projects are &ldquo progressing well&rdquo , and are expected to soft-open in early 2025.