DBS Group Research on Tuesday (Feb 21) downgraded Genting Singapore : G13 +1% to &ldquo hold&rdquo from &ldquo buy&rdquo due to limited upside, coupled with potential compression on the integrated resort operator&rsquo s valuation multiples.

 

The research team believes it is time to take profit following the stock&rsquo s &ldquo stellar run&rdquo over the past few months, as the risk-to-reward setup is now much less favourable. Its target price on the counter is now S$1.05, implying only a 5 per cent upside from the counter&rsquo s last trading price of S$1.00 as at 3.22 pm on Tuesday.

 

Genting&rsquo s earnings recovery has also been largely baked into its share price, DBS said. It noted that the stock is currently trading above pre-pandemic levels even though a complete turnaround in earnings is still some time away.

 

&ldquo We believe that valuation multiples could compress, considering uncertainty over the return-on-investment profile of RWS 2.0 and the management&rsquo s conservative capital management,&rdquo DBS added.

 

The group&rsquo s reluctance to return more capital to shareholders despite having surplus capital, along with the lack of investment opportunities outside of RWS 2.0 could also disappoint the market, the research team noted.

 

Furthermore, DBS&rsquo revised dividend per share projection of S$0.04 per share in FY2023 only translates to 4 per cent &ndash less attractive compared to other quality dividend plays in the market.

 

DBS increased its target price to S$1.05 from S$1 after raising its earnings projections for Genting in the next two years to reflect higher gaming and non-gaming revenue.

 

This came amid expectations that footfall at Resorts World Sentosa (RWS) will normalise ahead of initial projections as China reopens, along with faster tourist arrival recovery across key source markets in the region.

 

In contrast, UOB Kay Hian (UOBKH) expects the stock to offer a moderate upside, assuming a moderately progressive dividend policy, it said in a separate report on Tuesday.

 

The research team has maintained its &ldquo buy&rdquo call on Genting Singapore with a target price of S$1.15, implying a potential upside of 15 per cent. It also implies an enterprise value-to-Ebitda ratio of 9.3 times, which is 0.5 standard deviation below Genting&rsquo s historical mean.

 

UOBKH also believes the group is well-positioned to fulfil better capital management, particularly in 2023, after dropping its pursuit of a pricey Japan integrated resort concession.

 

Analysts from both research teams were also optimistic about Genting&rsquo s Q4 2022 results. The financial performance had topped DBS&rsquo expectations slightly, while UOBKH noted that the &ldquo commendable&rdquo results were in line with Genting&rsquo s rival Marina Bay Sands.

 

On Monday, Genting Singapore reported that its net profit for its second half more than doubled to S$255.7 million, thanks to increased gaming and non-gaming revenue from the growth of Singapore&rsquo s international tourist arrivals.

 

INTEGRATED Resort (IR) operator Genting Singapore&rsquo s : G13 0% net profit for its second half (H2) has more than doubled, thanks to increased gaming and non-gaming revenue from the recovery of Singapore&rsquo s international visitors.

 

Net profit for the six months ended Dec 31, 2022, rose to S$255.7 million from S$95.1 million in the same period a year prior.

 

This was mainly due to travel recovery gaining momentum in the second half of 2022, resulting in improved revenue, the operator of Resorts World Sentosa (RWS) said in a regulatory filing on Monday (Feb 20).

 

Revenue for the group more than doubled to S$1.1 billion in H2 2022, up from S$512.5 million in H2 2021. This was made up of gaming revenue, which posted a more than 100 per cent rise to S$753.7 million, and non-gaming revenue, which similarly more than doubled to S$307.8 million from the corresponding period last year.

 

A final dividend of 2 Singapore cents per share was proposed for the year, up from 1 Singapore cent per share the year before.

 

For the full year, Genting Singapore&rsquo s revenue came in at S$1.73 billion, up 62 per cent from S$1.07 billion in FY2021. Net profit for FY2022 was S$340.1 million, up 85 per cent from S$183.3 million a year ago.

 

Earnings per share stood at 2.82 Singapore cents for FY2022, up 86 per cent from 1.52 Singapore cents last year.

 

&ldquo With the recovery of Singapore&rsquo s international visitors, the group&rsquo s performance rebounded strongly, with RWS outperforming significantly over the pandemic years,&rdquo said Genting Singapore.

 

However, flight capacity and economic uncertainties will moderate the pace of recovery, said Genting Singapore, adding that it remained &ldquo cautiously optimistic for a full recovery&rdquo in the medium term.

 

The overall profit margin for FY2022 was impacted by higher utility tariffs, increased casino tax rates and accelerated depreciation on certain assets in connection with the renovation of Festive Hotel and RWS 2.0 expansion plans, Genting Singapore said.

 

RWS 2.0 refers to Genting Singapore&rsquo s expansion plans for the IR, which have commenced and includes ongoing construction of the Singapore Oceanarium, Minion Land at Universal Studios Singapore, and supporting infrastructure facilities to cater to the overall expansion of RWS.