Downgrade to HOLD

• Downgrade Genting Singapore to HOLD with a slightly lower Target Price of S$0.75, to reflect our negative earnings adjustments.
• In our view, the risk to reward set up is neutral after the significant 54% rebound in Genting Singapore share price from its bottom in March, as the brutal hit to its earnings over the next two years is largely counterbalanced by its attractive dividend yield and compelling valuation (FY21F EV/EBITDA of 7.7x vs regional peers median of 9.7x).
• We will be staying on the sidelines until the regional COVID-19 situation stabilises, and cross-border travel restrictions in the region loosen. Genting Singapore has outperformed most regional peers, with the stock down 15% YTD-2020. At this point in time, the laggards in Macau could be worth a look, given that travel limitations between Macau, Hong Kong and China are starting to be relaxed.

1. We now expect Singapore&rsquo s tourist arrivals to plunge by 40-45% in 2020. Rather than lifting cross-border travel restrictions across the board, the easing process will likely be uneven and done on a bilateral basis between Singapore and countries that have successfully contained the COVID-19 outbreak. However, the situation in key neighbouring countries like Indonesia (15.7% of total international visitor arrivals in 9M 2019), India (7.5%) and the Philippines (4.2%) is still deteriorating, with their COVID-19 curves still not showing signs of flattening thus far. Beyond 2020, pent-up travel demand should kick in, but appetite for travel will inevitably be constrained by economic woes, and potentially health-related rules like compulsory temperature checks and health declarations, or even government-mandated quarantines upon entry.
2. Our economists now project a sharp 5.7% contraction in Singapore&rsquo s 2020 GDP, marking the darkest year for the Singapore economy since independence, while unemployment rate could rise to 3.6% by the end of the year, from 2.3% in 4Q19. This will undoubtedly have an adverse impact on discretionary consumer spending, and lead to lower visitors to Genting Singapore&rsquo s casino and attractions.
3. Social distancing measures to stay in place for a protracted period, even after COVID-19 situation wanes. While this does not pose a problem in a zero-revenue environment, we believe that a full-fledged recovery will come in 2022 at the earliest, given that social distancing practices could well remain in place beyond 2020 to ensure that the situation remains under control. This would pose a problem for Genting Singapore, especially with regards to mass gaming as the approved gaming area in Singapore casinos accounts for less than 4% of the gross floor area, which is 50-80% lower than the casinos in Macau.
4. Prior to RWS shutting down, Genting Singapore has been taking steps like ensuring a minimum distance between each player and limiting the number of players per table and closing certain game types to reduce crowding. Additionally, this could also result in unbearably long queue times/limited eating spaces in RWS (due to compulsory empty spaces between riders/patrons), which would deter visitors to its non-gaming attractions.
5. The enhanced Jobs Support Scheme, property tax rebates and senior management pay cuts will help greatly with cost reduction, but overall EBITDA margins will still suffer due to the inherently high operating leverage of the business. We expect Genting Singapore adjusted EBITDA margin to narrow to 35.0% in FY20, from 48.0% in FY19

1. We now expect Singapore&rsquo s tourist arrivals to plunge by 40-45% in 2020. Rather than lifting cross-border travel restrictions across the board, the easing process will likely be uneven and done on a bilateral basis between Singapore and countries that have successfully contained the COVID-19 outbreak. However, the situation in key neighbouring countries like Indonesia (15.7% of total international visitor arrivals in 9M 2019), India (7.5%) and the Philippines (4.2%) is still deteriorating, with their COVID-19 curves still not showing signs of flattening thus far. Beyond 2020, pent-up travel demand should kick in, but appetite for travel will inevitably be constrained by economic woes, and potentially health-related rules like compulsory temperature checks and health declarations, or even government-mandated quarantines upon entry.
2. Our economists now project a sharp 5.7% contraction in Singapore&rsquo s 2020 GDP, marking the darkest year for the Singapore economy since independence, while unemployment rate could rise to 3.6% by the end of the year, from 2.3% in 4Q19. This will undoubtedly have an adverse impact on discretionary consumer spending, and lead to lower visitors to Genting Singapore&rsquo s casino and attractions.
3. Social distancing measures to stay in place for a protracted period, even after COVID-19 situation wanes. While this does not pose a problem in a zero-revenue environment, we believe that a full-fledged recovery will come in 2022 at the earliest, given that social distancing practices could well remain in place beyond 2020 to ensure that the situation remains under control. This would pose a problem for Genting Singapore, especially with regards to mass gaming as the approved gaming area in Singapore casinos accounts for less than 4% of the gross floor area, which is 50-80% lower than the casinos in Macau.
4. Prior to RWS shutting down, Genting Singapore has been taking steps like ensuring a minimum distance between each player and limiting the number of players per table and closing certain game types to reduce crowding. Additionally, this could also result in unbearably long queue times/limited eating spaces in RWS (due to compulsory empty spaces between riders/patrons), which would deter visitors to its non-gaming attractions.
5. The enhanced Jobs Support Scheme, property tax rebates and senior management pay cuts will help greatly with cost reduction, but overall EBITDA margins will still suffer due to the inherently high operating leverage of the business. We expect Genting Singapore adjusted EBITDA margin to narrow to 35.0% in FY20, from 48.0% in FY19