As the world cautiously emerged from the pandemic, hopes were set high for sectors such as mobility, travel, leisure, and hospitality. Any sector that was suppressed due to pandemic restrictions was seen as “hot” since late 2022, and for a while, such stocks did well, with companies like Royal Caribbean delivering investors a 6x return from its Covid-lows.
However recent earnings reports from major mobility and leisure players, mainly Grab, Genting & Singapore Airlines, suggest that the recovery play is over. As consumers, all we want is to pay for flights that are reasonably priced. While we can accept some premium due to post-pandemic demand, recent earnings would suggest that this tolerance is fast dwindling.
While each company has its own headwinds, what is consistent is that collectively, their fortunes reflect a broader reality: pent-up demand is not a viable business strategy in the long term. Given this, is the current market sell-off a buying opportunity for investors as they undergo strategic realignment, or would exercising patience be more prudent? Let’s delve into the specifics of each company to gain deeper insights into their circumstances.
Genting Singapore Ltd (SGX: G13)
I’ve decided to cover Genting first as I find it the most puzzling of the 3 companies in terms of the justification for this sell-off. (Approximately down by 15% since earnings release).
Here are some of their key earnings metrics summarised for easy reading,
- ✅ Revenue – At S$2.42 billion, slightly higher than the estimated S$2.41 billion.
- ❌ Net Income Miss – Reported by the company is S$611.6 million, falling short of the estimated S$692.6 million.
- ✅ Basic earnings per share (EPS) – At S$0.0507, approximately 80% higher than 2022
- ✅ Gaming revenue from Singapore integrated resorts – S$1.65 billion, exceeding the estimate of S$1.59 billion.
- ❌ Dividend per share – S$0.02, which is lower than the estimated S$0.04.
Needless to say, the killing blow was the dividend expectation where with its robust performance, investors expected more dividends due to the company being a recovery play. However, what is likely happening here is that Genting is redirecting its capital towards improving its offerings, a point which was further emphasized in their earnings report.
Looking ahead, the Group remains passionate in its commitment to enhancing RWS’ brand as Asia’s premium tourism destination with elevated offerings and visitor experiences. The ongoing developments taking place at the Forum Lifestyle zone, Universal Studios Singapore’s Minion Land and the Singapore Oceanarium are progressing well and on track to a soft opening in early 2025.
FY2023 Results and FY2023 Audited Financial Statements
In my opinion, Genting has decided to reinvest in itself in the short term with the hope of delivering greater value to shareholders in the longer term. While I’m not a shareholder of Genting at present, this does warrant some thought for investors looking for value over a longer-term horizon.
That said, it is also important to note that Genting cites that “its near-term prospects may be unpredictable due to macroeconomic and geopolitical factors beyond its control amid the ongoing post-pandemic recovery.” This suggests that demand is likely to cool off as it progress into 2024.
Singapore Airlines Ltd (SGX: C6L)
With SIA, the current weakness in share price can be attributed not only to weaker passenger demand, but specific for them, the prolonged elevation of fuel costs due to geopolitical tensions. Before we go into that, very briefly here are their earnings,
- ✅ Revenue increased by 4.9%, to S$5.1 billion from S$4.8 billion yoy.
- ✅ Net Profit rose 4.9% to $658.7 million
- ✅ Earnings per share (EPS) of S$0.16 in Q3 FY2024, up from S$0.103 year on year.
- ❌ Operating Profit fell 19.3% to $609.0 million
At first glance, these earnings seem in line with expectations, hence it is likely that investors see more volatility ahead for SIA in terms of both passenger demand and fuel costs. With regard to passenger demand, they cite that “Passenger yields under pressure as global capacity restoration leads to heightened competition”. This is true as a quick search of ‘new airlines’ on Google shows that almost ‘everyone’ is hopping on the bandwagon. More competition means more supply and with dwindling or stagnant demand, prices are sure to fall.
On the note of rising fuel costs, SIA reports an almost 9% increase in Net Fuel Costs. This trend is likely to persist in the foreseeable future as fuel demand continues to be resilient due to the ongoing conflicts in Gaza and Ukraine. As long as conflicts continue, fuel costs will remain elevated, hence a potential catalyst for SIA would be any ceasefire of sorts. They have also addressed this in their financial report citing that “Geopolitical and macroeconomic concerns, inflationary pressures, and supply chain constraints may pose headwinds to
airline industry”.
In my opinion, there does not seem to be any near-term catalyst for SIA hence it is likely that investors are in this for the dividends as they are expected to deliver 5.8% dividends this year. This is commendable given that their historical average floats at around 4.7%.
Grab Holdings Ltd (NASDAQ: GRAB)
I’d like to disclose that I’m a shareholder of Grab. Regarding the recent earnings report, I find the results to be rather neutral. Management appears to acknowledge that platform demand may plateau this year. Before delving into specifics, let’s review some key metrics from their latest earnings statement.
- ✅ Revenue increased by 30%, yoy from $502 million to $653 million.
- ✅ Share buyback up to $500 million of Class A Shares
- ✅ Q4 2023 Profit for the period was positive at $11 million (From $391 loss in the same period last year)
- ✅ Further reduction of incentives from 8.2% previously to 7.3%
- ❌ Projected 2024 Revenue = $2.7b to $2.75b, less than analyst consensus of $2.8b
Overall, there isn’t much to nitpick about their earnings, apart from how the market seems to be expecting more from Grab. This has lead to a sell-off as management guidance were below estimates. With the whole landscape of how pent-up demand is normalising, investors are anxious to see if the growth cycle can continue.
In my opinion, Grab will soon reach a point where “everyone” is a customer. At this point, revenue will likely plateau as there will be little to no market share left to steal. Corporate strategy will change to focus on increasing the revenue per user hence likely cross-selling them other accompanying services (finance etc.) or even focusing on providing premium services.
This is further supported by an interview with Grab CFO recently where he mentioned that “2024 will be a year of investing“. He goes on to also say that Grab will continue to “invest in deepening their product …… invest in new set of features“. Overall, I see excess capital in the company being allocated to share buybacks and to reinvest back into themselves which seems to be right by most standards.
Strategies Change, New opportunities arise.
Overall, while the sell-off from these recently discounted companies may appear to be buying opportunities, due diligence and patience should be exercised. The evolving landscape requires even more diligence from investors to differentiate between short-term volatility and enduring value.
As Grab, Genting, SIA, and their counterparts navigate the complexities of a post-pandemic world, investors must weigh the potential for recovery against the potential headwinds and uncertainties.