Genting Singapore Q1 FY2024

Genting Singapore on 10^th May 2024 announced an excellent set of quarterly results for Q1 FY2024, with revenue growth of 62% y-on-y to S$784.433 million and net profit jump of 92% to S$247.437 million. Resorts World Sentosa (RWS) has benefited from the increased visitorship and tourism spending during the Chinese New Year festive season, as well as from the relaxation of visa regulations between China and Singapore that took effect in February 2024.

Gaming revenue jumped up the most by 69% to S$576 million in Q1 while non-gaming revenue increased by 44% to S$208 million. Non-gaming revenue was affected by the closure of Hard Rock Hotel in March 2024 for renovation and upgrades in other hotels.

Genting Singapore recorded the highest quarterly adjusted EBITDA of S$369.5 million in past few years, beating the previous high of S$350 million in Q3 FY2023. EBITDA margin was decent at 47.1%, higher than 42.4% in FY2023 and 44.9% in FY2022.

Singapore Sentosa IR to drive growth

I have earlier projected, in my article below, for Genting Singapore Sentosa IR to achieve revenue of S$3.0 billion and EBITDA of S$1.4 billion in 2023 and a revenue of S$3.4 billion and EBITDA of S$1.65 billion a year thereafter.

Genting - More than just Roulettes and Fun Rides in Singapore | I3investor

Annualising Q1 FY2024 result, we get a total revenue of S$3.13 billion and adjusted EBITDA of S$1.48 billion a year. Q1 FY2024 may have been boosted by higher tourists’ spending during the Chinese New Year season, but there are reasons to believe that the strong revenue growth in Q1 may continue in following quarters due to the following reasons:

·         At Universal Studios Singapore, Naruto: The Gallery has made its first-ever international debut outside of Japan, showcasing the iconic world of Naruto from March to June this year.

·         RWS is also hosting the Asia Premiere of Harry Potter: Visions of Magic in late 2024. Spanning across 40,000 square feet of interactive space, Visions of Magic is set to become the largest ever engagement of Harry Potter, featuring immersive video content exclusive to RWS.

·         Construction works for the new Minion Land, the Singapore Oceanarium, and the Central Lifestyle Connector remain on track for opening in phases from the first quarter of 2025.

·         The ongoing tender for the new Waterfront development, including two hotels totalling 700 rooms, is expected to be awarded in the third quarter of this year, with on-site works targeted to commence by the fourth quarter of this year.

·         The former Hard Rock Hotel, closed in March 2024, is undergoing extensive renovation and it will be relaunched as a new all-suites luxury hotel in early 2025.

·         RWS is actively working with key industry leaders to boost visitorship to Sentosa. On May 10th, RWS signed a Memorandum of Understanding (MOU) with Sentosa Development Corporation (SDC), DBS Bank (DBS), and Singapore Tourism Board (STB) to establish a collaborative Sentosa Precinct Partnership. All these initiatives will pave the way for a transformation of RWS’ destination appeal.

Potential Valuation of Genting Singapore

For FY2024, there is a chance for Genting Singapore to hit total revenue of S$3.2 billion, looking at the strong start in Q1. Applying an EBITDA margin of 47.0% (lower than earlier assumed 48.6% achieved in Q3 FY22), Genting Singapore may achieve an EBITDA of S$1.5 billion in FY2024.

With Hard Rock Hotel reopening in early 2025 and Minion Land & Singapore Oceanarium opening in phases from Q1 2025, Genting Singapore should be able to drive visitorship higher by 5%-10% in 2025. Hence, I forecast for its revenue to reach S$3.4 billion in 2025 and EBITDA to test S$1.6 billion in 2025.

The two hotels in the new Waterfront development should open in phases in 2026, and will add 700 hotel rooms to Sentosa IR’s current 1,840 rooms, or an increase of 38% when completed. Assuming a similar 38% increase in total visitorship but no room rate hike, the 38% increase in total hotel rooms will drive growth in non-gaming revenue by S$316 million a year from the annualized S$832m in 2024. So, from FY2026 Genting Singapore may achieve annual revenue of S$3.7 billion, taking into account only of the increase in non-gaming revenue. Yearly EBITDA may reach S$1.75 billion then.

Gaming stocks are usually valued in terms of EV/EBITDA, for example:

·         Sands China at 100x EV/EBITDA, 30x PER

·         MGM China at 11.7x EV/EBITDA, 21x PER

·         Wynn Macau at 13x EV/EBITDA, 42x PER

If we take the lowest EV/EBITDA multiple of 11.7x above, Genting Singapore should be valued at 11.7x S$1.5 billion (FY2025) = S$17.55 billion of Enterprise Value (EV). As Genting Singapore has net cash of some S$3.6 billion, the equity value of Genting Singapore should be at S$21.1 billion or S$1.76 per share.

I have earlier used a valuation of 20x EV/EBITDA for Genting Singapore, at a 20% discount to the Macau peers then at average 25x EV/EBITDA in early 2023. Now I think it is easy to argue for a valuation of 13x EV/EBITDA for Genting Singapore as it is growing at double digits over next few years. The valuation should then look like:

                Year                2024                    2025                    2026                    2027                    2028

EBITDA (S$m)                1,500                  1,600                  1,750                  1,900                  2,000

EV at 13x (S$b)              19.5                     20.8                     22.7                     24.7                     26.0

Equity Value (S$b)          23.1                     24.4                     26.3                     28.3                     29.6

Value per share (S$)       1.92                     2.03                     2.19                     2.36                     2.46

Implied Valuation for Genting Bhd

Genting Bhd owns 52.5% in Genting Singapore, and it is trading at a market capitalization of just RM17.7 billion, even lower than its stakes in Genting Singapore of RM19.6 billion. That means at current prices, investors are already getting all the other assets (Genting Malaysia, Genting Plantations, Resorts World Las Vegas, oil & gas division and power plants) of Genting for free.

In end of Feb 2024 when Genting Singapore was trading at around S$1.10 per share, Hong Leong research had a sum-of-parts (SOP) valuation of RM12.94 for Genting. Applying a holding company discount of 45%, Hong Leong had a target price of RM7.12 for Genting.

Now if Genting Singapore revalues to S$1.92 per share by end of 2024, it will add a value of S$5.07 billion or RM17.7 billion or RM4.58 per share to Genting. SOP valuation will become RM17.52 per share. Applying a 45% discount again will put a fair value of RM9.63 to Genting.

By 2028, Genting Singapore may be worth S$2.46 per share at 13x EV/EBITDA and S$2.80 per share at 15x EV/EBITDA. This would add a valuation of S$8.5 billion (RM29.7 billion) to S$10.6 billion (RM37.3 billion) to Genting. Assuming same valuation for other assets, the SOP valuation for Genting may reach RM20.60 to RM22.50 per share.

Applying a same 45% holding company discount, Genting should be worth RM11.33 to RM12.38 per share then.

Other Upsides of Genting Bhd

Hong Leong SOP valuation did not include any value to TauRx, the 20% associate company of Genting. Market reports project a valuation of US$15 billion for TauRx should its Alzheimer's drug get approval from US FDA or UK authorities for commercialization. That would add another value of US$3 billion or RM3.65 per share to Genting valuation.

Another positive development is the roll out of New York casino licence tender later this year. Genting Malaysia is seen as one of the frontrunners to secure one of the three full casino licences to be issued. I have earlier in the article below estimated that a full casino license in New York might fetch a valuation of as much as US$10 billion to Genting Malaysia:

Genting Bhd - Strikes Gold in the US | I3investor

This would add a valuation of US$10 billion to Genting Malaysia, in turn a valuation of US$5.16 billion or RM6.25 per share to Genting Bhd.

In the same article above, I anticipated that a US listing would make sense for Genting to consolidate all its US assets into the listed co. Genting’s wholly owned Resorts World Las Vegas would be worth at least US$5.7 billion upon injection into the listed co. That would add a valuation of easily US$1.2 billion (above its book value of US$4.5 billion) or RM1.45 per share to Genting Bhd.

These three upsides would be sufficient to double the valuation of Genting from RM11.33 to RM22.68 per share by 2028.