Genting Singapore (GENS SP) - Maybank Kim Eng 2016-11-04: Stellar 3Q16 results, but gaming volumes very weak

Genting Singapore (GENS SP) - Maybank Kim Eng 2016-11-04: Stellar 3Q16 results, but gaming volumes very weak GENTING SINGAPORE PLC G13.SI

Genting Singapore (GENS SP) - Stellar 3Q16 results, but gaming volumes very weak


U/G to HOLD with negatives largely priced-in 

  • We U/G GENS to HOLD as the stock appears fairly valued given the limited downside to our TP. 
  • We have revised our assumptions and raise our EPS and EBITDA estimates on positive 3Q16 and 9M16 results, but point out that gaming volumes remain at record low levels. 
  • We raise our TP slightly (+1%) to SGD0.72 based on unchanged 8x FY17E EV/EBITDA (1SD below the historical 12M forward EV/EBITDA mean). 
  • Despite the revisions, we continue to have concerns regarding the continued weakness of VIP volumes and mass market gross gaming revenue (GGR).


Earnings and dividends outperformed… 

  • 3Q16 core net profit of SGD105.8m (+53% YoY) brought 9M16 core net profit to SGD180.9m (-12% YoY), above our expectation at 121% of our full-year forecast. 9M16 EBITDA of SGD545.3m was also above our expectation at 87% of our full-year forecast. 
  • The outperformance was largely due to a 3Q16 VIP win rate of 3.3%, which was markedly higher than our forecast of 2.85%. 
  • To our pleasant surprise, an interim DPS of 1.5cents was declared. In the past, only final DPS were declared.


… but VIP volume and mass markets GGR very weak 

  • Adjusting for normal VIP win rate, 3Q16 win normalised EBITDA of SGD209.2m was curiously higher than 2Q16 win normalised EBITDA of SGD184.9m, although 3Q16 VIP volume fell ~15% QoQ and 3Q16 mass GGR eased ~5% QoQ. 
  • GENS attributed this to cost rationalisation, but we gather that this was largely derived from lower direct VIP rebates rates. This was because 3Q16 VIP volume of ~SGD6.0b and 3Q16 mass market GGR of ~SGD350m were record lows.


Raising long term EBITDA estimates by only 3% 

  • We have revised our assumptions for the high 3Q16 VIP win rate and lower direct VIP rebates rates, tempered by lower VIP volume and mass market GGR going forward. Accordingly, we raise FY16/FY17/ FY18 EPS by 66%/15%/15% and EBITDA by 15%/3%/3%. 
  • EPS is raised more than EBITDA due to positive operating leverage from fixed depreciation and perpetual securities interest. 
  • We also raise FY16 DPS to 3.0cents, but maintain long-term DPS at 1.5cents as GENS has indicated it will conserve cash for greenfield investments (e.g. Japan).



Swing Factors


Upside

  • VIP hold rate - If VIP hold rate is above theoretical levels, it can positively influence earnings.
  • Rise in local mass market base. Singaporeans account for the majority of mass market gamblers and are more resilient.
  • Tilt towards mass market away from VIP will expand margins due to less commissions and rebates.

Downside

  • VIP hold rate – If VIP hold rate is below theoretical levels, it can negatively influence earnings.
  • Bad debts – Chinese account for the majority of VIPs but gambling debts are not enforceable in China.
  • Regional expansion – new jurisdictions often require high capex commitments without guaranteeing returns.




Yin Shao Yang Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-11-04
Maybank Kim Eng SGX Stock Analyst Report HOLD Upgrade SELL 0.72 Up 0.710




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