To The Moon

On the route to full recovery - $GENTING SINGAPORE LIMITED(G13.SI)$  (GENS)

(GENS) booked a 3QFY22 adjusted EBITDA of S$252.8m, which is a significant improvement on both an annual (+146.6% y-o-y) and quarterly basis (+71.9% q-o-q). Its 9MFY22 adjusted EBITDA amounted to S$521.5m, accounting for 76.6% of consensus' full-year estimate, notably above expectations given that recovery in 4QFY22 will be more pronounced. GENS's strong performance during the quarter was largely driven by a sharp rebound in overall gaming volumes and an exceptionally high VIP win rate of 4.8% (typically c.3.0%).

GENS' total revenue surged by 49.1% q-o-q and 106.6% y-o-y to S$519.7m, reaching 87% of 3Q19 (pre-COVID) levels. Notably, gaming revenue stood at 106% of 2019 level, led by an increase in overall gaming volumes to an estimated 90-95% of pre-pandemic levels and due to a higher mix of premium customers during the period. Meanwhile, leisure revenue hit 59% of 2019 level during the quarter on the back of a resurgence in tourist arrivals to 45% of pre-COVID19 level in 3QFY22.

Outlook continues to be promising despite macroeconomic headwinds, though strong SGD could have a slight negative impact on inbound tourism. Overall indicators suggest that it will be some time before substantial pent-up demand subsides, particularly as countries in the region continue to reopen. While a sustained recovery is anticipated in inbound tourist arrivals, the strong SGD (which has outperformed the majority of Asian currencies and currencies of many other major economies) could have a slight adverse impact on the gradient of the recovery. Nonetheless, GENS is insulated against rising interest rates because of its robust balance sheet, a stark contrast to most other gaming operators in the region.

The next two years should reflect stronger gaming volumes and healthier operating margins on greater economies of scale, though a full recovery may remain elusive until traffic from the important China market returns. The stock could be a great add to the portfolio while waiting for China to reopen. A good upside potential could be expected when it does.