Genting Singapore - DBS Research 2016-05-16: Still yet to fully turnaround

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GENTING SINGAPORE PLC G13.SI 

Genting Singapore - Still yet to fully turnaround

• Adjusted EBITDA fell 16% y-o-y – in line
• VIP rolling chip volumes down c.34% y-o-y with bad debts spiking to S$92m from S$45m in 4Q15
• Potential capital management in 2017 if there is a lack of investment opportunities

Bottoming out but risk remains. 

• We maintain our HOLD call on Genting Singapore (GENS) with a revised TP of S$0.79. 
• While GENS’ earnings are bottoming out after a challenging 1.5 years and we expect earnings to pick up in 2H16, GENS is likely to still report a y-o-y decline in earnings for the next quarter with bad debts remaining an issue.

VIP business a near term drag. 

• We expect the VIP business to remain a drag on GENS’ near term earnings as 
  1. bad debts could continue to be elevated and 
  2. rolling chip volumes could fall as GENS remains cautious and tightens its credit criteria to mitigate against potential future bad debts. 
• Overall, we project a c.21% decline in VIP volumes this year.

Potential capital management. 

• While the near term outlook is challenging with net cash of c.S$3.6bn, GENS is in a strong position to take advantage of opportunities in new casino markets. However, should the prospects of investing in a Japanese integrated resort remain elusive by next year, GENS may consider capital management initiatives, which we believe could entail higher dividends or share buybacks.

Valuation:

• To account for improved cashflow generation on the back of a reduction in credit terms for its receivables (30 days down from 90 days previously), we raise our DCF-based TP to S$0.79 from S$0.65. 
• Our valuation does not include the proposed Jeju integrated resort, given limited details on the project.

Key Risks to Our View:

• Turnaround of VIP business and award of casino license in Japan. While we maintain our cautious stance, GENS’ share price could re-rate on the back of a sustained recovery in the VIP market. 
• Further upside could also arise if Japan legalises casinos and GENS is awarded a license to build an integrated resort. The casino bill has yet to be passed by the Japanese government. 
• In addition, there is considerable uncertainty over the location of the integrated resort, tax structure, timing, and whether the casino will allow local Japanese patrons. 

Mervin SONG CFA DBS Vickers | http://www.dbsvickers.com/ 2016-05-16

DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 0.79 Up 0.65