Genting Singapore - DBS Research 2017-02-23: Onwards and upwards

GENTING SINGAPORE PLC G13.SI

Genting Singapore - Onwards and upwards

4Q16 adjusted EBITDA of S$233.7m (+29% y-o-y) above expectations.
FY16 DPS of 3 Scts, above consensus estimate of 2.5 Scts but moderating prospects for higher DPS on potentially larger investment in Japan casino.
Focus on growing top line with bad debts under control and right sizing overheads.

We maintain our BUY call on Genting Singapore (GENS) with a revised TP of S$1.20.
GENS announced that it will be moving towards a more efficient capital funding model over the next three years.
However, it indicated that it may not lift its DPS beyond the 3 Scts in the near term to reserve extra liquidity ahead of a potential bid for a Japanese casino.
While this is disappointing, we believe GENS could potentially gear up its balance sheet to a modest level, which should result in better ROEs, triggering a further re-rating of the stock.

While GENS’s share price has rallied over 25% since we upgraded GENS to BUY in August 2016, we believe the re-rating will continue on the back of sustained earnings recovery in 2017.
Improved profitability in 2017 (17% jump in adjusted EBITDA) will be driven by
1. recovery in VIP volumes (we have penciled in a 3% uplift) as management is now focusing on growing its top line,
2. VIP win rate normalising to the 2.85% theoretical rate from c.2.67% in 2016, and
3. (lower bad debts given GENS’s more selective and conservative credit policy over the past year.

Despite the recent rally, GENS still offers compelling value, as it trades at 10.2x FY17F EV/EBITDA, which is below –1SD of its mean of 10.4x. In addition, it trades at a c.30% discount to its Macau peers on an EV/EBITDA basis which close to -1SD of its mean EV/EBITDA differential.
With increasing dividends, earnings turnaround and potential of winning the Japanese casino bid in the medium term, we believe GENS can rerate closer to its average EV/EBITDA multiple of 13.0x.

On the back of a better than expected results, we raised our DCF-based TP to S$1.20 from S$1.15. Our valuation excludes any Japan casino.

Decline in VIP and mass businesses. The key risk to our positive view is a slower-than-expected recovery or decline in GENS’s VIP and mass divisions.

Mervin SONG CFA DBS Vickers | http://www.dbsvickers.com/ 2017-02-23

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.20 Up 1.150