Companies are affected by crises in different ways.
The Covid-19 pandemic is unprecedented in the way governments over the world have responded.
Borders have been shut, air travel curtailed and whole cities locked down.
Companies in industries such as tourism, travel, hospitality and airlines have seen sharp declines in demand, leading to warnings of plunging revenue and cash flows.
Others may suffer indirectly from social distancing measures that restrict people’s movements and prevents them from patronising shops and stores.
Yet others complain of lower demand for their products and services due to widespread job losses and lower consumer spending ability.
Here are two blue-chip companies that have been badly impacted by Covid-19. However, I believe they are massively undervalued if you consider their long-term prospects.
Genting Singapore Limited (SGX: G13)
Genting Singapore Limited is an owner and operator of Resorts World Sentosa (RWS), which houses a casino, hotels, a theme park and MICE (meetings, incentives, conventions and exhibitions) facilities.
In mid-March, Genting issued a profit guidance stating that its first-quarter fiscal year 2020 (FY 2020) financial results are expected to be significantly and adversely impacted.
The update said that RWS had experienced a significant decrease in visitor attendance due to travel restrictions and border closures.
Revenue across all its facilities, including attractions, hotels, restaurants, MICE facilities and the casino was significantly lower.
On 4 April, Genting further announced that due to the implementation of the “Circuit Breaker” measures from 7 April till 4 May, all guest offerings at RWS will be temporarily suspended.
The group’s share price has tumbled 21.5% year to date, and shares now trade at just 13x historical earnings.
As the virus outbreak remains uncontained, the closure of RWS could be extended beyond 4 May. If so, this would result in the continued loss of revenue and cash flow for Genting.
However, over the long haul, the effect is likely to be temporary.
Once the pandemic is over and the economy picks itself back up, Genting should be able to continue generating strong cash flows.
The group has laid out plans to expand its RWS floor area by up to 50% over the next five years. This organic growth will stand the group in good stead once this crisis has passed.
Hongkong Land Holdings Limited (SGX: H78)
Hongkong Land Holdings Limited, or HKL, is a major property investment, management and development group. The group owns and manages more than 850,000 square metres of prime office and luxury retail property in Hong Kong, Singapore, Beijing and Jakarta.
Covid-19 has greatly dampened demand for office and retail space, and also increased the financial stress for tenants in HKL’s properties.
Shares in HKL have declined by 27% year to date and now trade at almost a 75% discount to book value.
The low price to book value makes shares cheaper than they have been in the last decade.
Though its development properties will no doubt face delays, its investment properties division should still see relatively resilient rental income.
Looking ahead, pressure on its business may last until the end of 2020 and into 2021 as well.
However, the group has positioned itself for long-term growth by purchasing a piece of land in Shanghai.
The purchase was made on 20 February via auction for approximately US$4.4 billion and will be developed into a mixed-use development by 2027.
Get Smart: Focus on the long-term prospects
Though these two companies are facing severe short-term headwinds due to the severity of the pandemic, I believe their long-term prospects remain sound.
Both companies have strong balance sheets and have historically generated healthy free cash flows. Dividends have also been a staple.
Investors can take comfort knowing that both companies can most likely get through this tough period unscathed. This should give them the confidence to include them in their portfolios.
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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.
