What caused the Genting Singapore share price to soar 50%?

Share price of leisure and hospitality group Genting Singapore has been steadily rising for the last one month, despite the fast-growing number of coronavirus cases in the country.

Since hitting an 11-year low price of S$0.51 per share on 19 March, the parent company of Resorts World at Sentosa has seen its stock value skyrocket roughly 47%.

As at 13:30 SGT on Thursday 09 April, Genting Singapore is trading at S$0.755 per share on IG’s trading platform – a five-week high.

Like most travel, leisure and hospitality equities, Genting Singapore’s market capitalisation had also been erased significantly (by roughly 45%) as a result of the coronavirus pandemic, whose impact on financial markets appears for now to have peaked in mid-March.

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What caused the Genting Singapore share price gain of the last one month?

But an in-depth look at trading charts revealed a steeper recovery slope for Genting Singapore than the likes of Singapore Airlines and resort operator Banyan Tree Holdings.

One possible reason for this could be the fact that the Singapore government had rolled out a second and third coronavirus relief package worth over S$50 billion in late-March and early-April that included an enhanced Job Support Scheme and property tax rebates with extra benefits for tourism-related industries.

According to DBS analysts, Genting Singapore is poised to reap significant cost savings.

They estimated that the company employs around 2,500 employees, of which 70% are Singaporeans and Permanent Residents. As part of the enhanced Job Support Scheme – assuming a 75% wage offset for each employee on an average monthly salary of S$2,500, Genting Singapore could potentially receive at least S$16.4 million per month for the next nine months.

An additional 60% property tax rebate – up from the initial 10% - also translates to further savings of around S$20 million.

Overall, DBS researchers estimate that the group could see a S$170 million reduction in full-year operating costs, with total potential cost savings accounting for around 28% of DBS’ FY20 full-year earnings projection.

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As an aside, UOB analysts are slightly less optimistic that DBS in terms of Genting Singapore’s profit projections, although they do not see share price falling even lower than 19 March’s low of S$0.51 per share.

UOB on 06 April cut their net profit forecasts for the group by 43% for 2020 and 9% for 2021, in the expectation of reduced travel patterns through to the first quarter of 2021.

In terms of earnings before interest, tax, depreciation and amortisation, UOB hypothesises that this may decline between 43% and 77% year-on-year for 2020, based on an internal sensitivity analysis.

On the back of these factors, the analysts have lowered their 12-month share price targets for the stock to S$0.80 per share from S$0.95 previously.

Read also: Singapore Airlines' share price sunk 10% as company issues US$15 billion of new securities

Other possible reasons for Genting’s share price jump

A second possible reason for the share price rally could be that the company had managed to get an extension for the postponement of its annual general meeting for the finalisation of its 2019 financial results.

On 18 March – two days before the company’s share price spiked up 14%, the Accounting and Corporate Regulatory Authority of Singapore had approved Genting Singapore’s application to delay its FY2019 to as late as 29 June 2020 and file its annual return for the financial year by 30 July 2020.

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A second factor could be the company’s profit guidance for the first half of 2020, in which it effected a reduction in executives’ pay and directors’ fees and adopted certain cost control measures.

These include a 15% reduction in Non-Executive Directors’ fees for the first quarter 2020; an 18% reduction in the base salary for Executive Directors; a 9% to 18% reduction in the base salary for all managerial staff; encouraging employees to take no-pay leave and/or annual leave; and streamlining workflow and strengthen productivity drive.

On the flipside, the group did issue a profit guidance note that its financial results will be significantly and adversely impacted for the first quarter ending 31 March 2020 and the half year ending 30 June 2020, as compared to the corresponding periods in the previous year.

‘With the continuing spread of COVID-19 around the world, and with more countries, including Singapore, imposing travel restrictions and travel advisories, travel and tourism industries have been and continue to be severely and adversely impacted.

‘As a result, our property, Resorts World Sentosa, has experienced a significant decrease in visitor attendance and correspondingly revenue, across all its facilities, including our attractions, hotels, restaurants, MICE facilities and the casino,’ the group stated in the same note.

How to take a position on Genting Singapore's shares

What do you make of Genting Singapore's FY2020 guidance?

With IG, you can trade on the world’s best trading platform and back Genting Singapore’s shares rising or falling. Go long (buy) if you think the stock will increase in value, or go short (sell) if you think the shares will decrease.

To take a position, follow these simple steps:

1. Create an IG trading account or log in to your existing account

2. Type ’Genting Singapore’ or ‘GENS-SG’ in the search bar and select it

3. Choose your position size

4. Click on ‘buy’ or ‘sell’ in the deal ticket

5. Confirm the trade