In a national address, PM Lee Hsien Long announced a string of relaxation of Covid-19 measures. Among them are doubling the group size to ten people, optional masks wearing outdoor, returning to workplaces, and, most importantly, raising the limit on large-scale gatherings andreopeningborders to all travellers. $GENTING SINGAPORE LIMITED(G13.SI)$
Since the announcement, Genting Singapore, one of the beneficiaries of the reopening, has risen by 3%. Could Genting Singapore go even higher from here? How much would the reopening of borders and relaxation of Covid-19 measures benefit them?
To begin, let us examine how this stock has done in recent months. Genting Singapore is still trading at a discount to pre-pandemic levels (-12%), and while there has been some fluctuation, the stock has remained pretty flat over the past year.
What does Genting Singapore (SGX:G13) do?
Genting Singapore owns and operates Resorts World Sentosa (R.W.S.), spanning 49 hectares across Sentosa. R.W.S. is not only Universal Studios but also a wide range of attractions and amenities around the island. This includes six themed hotels with approximately 1,600 hotel rooms, a casino, S.E.A. Aquarium, Adventure Cove Waterpark, a selection of indoor and outdoor MICE venues, and various dining, retail and entertainment options.
Before we proceed further, it’s important to note that Genting Singapore and Genting Hong Kong are two separate entities. You may have heard about Dream Cruise’s bankruptcy due to a cash flow problem. This does not impact Genting Singapore as Dream Cruise is operated by Genting Hong Kong.
Potential recovery?
Genting Singapore’s latest financial report showed revenue of $1.067 billion, up slightly from $1.064 billion a year before, but Covid-19 continues to impact operations. Despite this, net profit increased by 165% to $183.3 million, mainly attributed to the cost-cutting during the peak of the pandemic.
Source: Finbox
Nevertheless, the company still has a long way to recover, and this border relaxation could be a start. As can be seen in this graph, the company’s pre-pandemic revenue is more than doubled of what the previous fiscal year brought in.
With Singapore’s border opening to all fully vaccinated travellers from any country in the world on 1 April, 2022, we can expect more tourists. While we should not expect a full recovery, a recovery of 2/3 of pre-pandemic revenue would be a possible target for 2022 (A target set by analysts too at $1.6 billion). This represents a roughly 50% increase from the current level, and if it goes well, we may see some recovery in the stock itself.
What about the net profit? A 50% increase in revenue would almost certainly result in a 50% rise in net profit.
Source: Finbox
This corresponds to what analysts estimate for FY2022, with a mean forecast of $300 million, or around 50% higher than the present net profit of $183 million.
Nonetheless, I am a little more optimistic. I believe that if the company can increase revenue by 50% to two-thirds of its pre-covid revenue, the increase in net profit will be higher, as the majority of the company’s costs are fixed. Costs that do not rise much as the number of tourists increases. As a result, it has the potential to make more money per tourist who visits the resort.
How does Genting Singapore make its money?
Let us sidetrack a little and look at how R.W.S. generates money so you can have a better idea of whether or not recovery is on the way. In general, the company’s revenue can be divided into two categories: gaming and non-gaming.
Gaming
Gaming revenue is calculated after subtracting goods and services tax, commissions, discounts, and loyalty points granted to consumers and are reported as net house takings, which is the total of wins and losses resulting from gaming play—basically the casino winnings.
For 2021, gaming revenue came in at around 80% of the company’s total revenue, standing at $803 million. With the border closed most of the time, I’m curious as to who is throwing money at these places. This puts into perspective where the majority of the company’s revenue comes from, and it isn’t from its attractions like Universal Studios. This is also true for Pre-COVID, in which the company derived 65% of its overall revenue from its gaming division.
Non-Gaming
Hotel room revenue, attraction revenue, food and beverage, retail sales, and other hospitality and support services make up the non-gaming component.
Non-gaming revenue only accounts for 20% of total revenue in 2021, totalling $258 million.
Genting Singapore’sFinancial Health
Now let’s get back to the main topic. With the worst day behind Genting Singapore, how well has the company fared? More specifically, has Covid severely impacted Genting Singapore’s financial health?
The good news is that the company’s total liabilities have not increased over time, in fact, they have decreased.
Source: Finbox
Aside from that, cash flow from operations continues to be positive. While not as high as in the past, this has ensured that the company can continue to operate and, in fact, has taken advantage of the opportunity to invest in its future (more on this later).
Source: Finbox
When it comes to cash on hand, the corporation still has more than $3.3 billion, which is a healthy amount. (the pre-pandemic amount was $4 billion). The difference is mostly due to changes in cash flow for investing, which I’ll discuss later.
R.W.S. big plan
While Covid 19 has reduced the number of tourists, it has had no effect on the company’s overall strategy. R.W.S. has announced that building on RWS 2.0 will commence in the second quarter of this year. The expansion plan includes the expansion of The Universal Studios Singapore theme park with a new zone: Minion Land, featuring the Minion characters from Despicable Me, as well as the expansion of the S.E.A. Aquarium by three times its current size, effectively rebranding it as Singapore Oceanarium. R.W.S is also intending to renovate and refresh its hotels, with Festive Hotel evolving into a business-leisure and work-vacation hotel with a variety of mobile working spaces and lifestyle offers.
Altogether, R.W.S. has set aside approximately S$400 million for project investment in 2022, which is reflected in its capital expenditure. A sum equal to roughly three times the park’s present operating cash flow.
Source: Finbox
Genting Singapore’s Valuation
With such a great outlook, is Genting Singapore a buy?
The company isn’t undervalued at its current price-to-earnings ratio. With the exception of 2021, its PE is generally between 11 and 15. However, it currently has a PE of 54. Even if we assume that Genting Singapore’s earnings increase by 50%, resulting in earnings per share of 2.28 cents, up 50% from FY2021’s 1.52 cents.
The forward PE only drops to 35 at the current share price of $0.82 per share, which is unusually high when compared to its historical average.
Source: TradingView
To achieve a PE of 15, EPS must be 5.4 cents per share, which is quite near to the 5.71 cents per share earned before the epidemic. And that’s 2.5 times higher than the company’s existing earnings, making it a difficult undertaking for the company.
As announced earlier, the current payout of S$0.01 results in an annualised dividend yield of only 1.2%. Thisdividendis low, but if it recovers to pre-pandemic levels, it should return to $0.035 a share, or a 4.2% yield. This, however, may take some time and may not be worth the wait.
Source: TradingView
Conclusion
Scattered around the articles are data from analysts to provide an objective outlook. That said, do take the numbers with a pinch of salt, including what I have said. While it is undeniable that Genting Singapore is bound to benefit from the border reopening, things remain fluid and can change suddenly.
While the reopening of the border will benefit Genting Singapore, it seems like no matter how optimistic we are, the company is stillovervalued.
source: drwealth
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