Genting Singapore (GENS SP) - Maybank Kim Eng 2017-02-23: Stunned by higher-than-expected dividends, U/G BUY

Genting Singapore (GENS SP) - Maybank Kim Eng 2017-02-23: Stunned by higher-than-expected dividends; U/G BUY GENTING SINGAPORE PLC G13.SI

Genting Singapore (GENS SP) - Stunned by higher-than-expected dividends; U/G BUY


Raised TP by 38% to SGD1.10 

  • FY16 earnings were within our expectation but dividends outperformed.
  • FY16 DPS implies > 100% core DPR, a first for a Genting company. While the operating environment remains challenging, we concede that investors will be more excited over the higher-than-expected dividends.
  • Therefore, we lift our target FY17 EV/EBITDA to 12x (on par with longterm 12M forward EV/EBITDA mean) from 8x (-1.5 SD to LT 12M forward EV/EBITDA mean) and lift our TP to SGD1.10 from SGD0.80.


Earnings in line but dividends beat by a mile 

  • 4Q16 core net profit of SGD104.2m (+67% YoY) brought FY16 core net profit to SGD285.1m (-23% YoY), representing 105% of our forecast. FY16 EBITDA of SGD779.0m (-4% YoY) was in line with our expectation at 102% of forecast. 
  • The final DPS of 1.5 cents brought FY16 DPS to 3.0 cents (+50% YoY), which outperformed our expectation by 1.0 cent or 50%. 
  • The FY16 DPS implies 127% core DPR, a first for a Genting company if our memory serves us correctly.


Maintain earnings estimates but lift DPS estimates 

  • Going forward, GENS expects VIP volumes to be stable and to maintain trade receivables at ~SGD200m but concedes that the mass market will be negatively impacted by the weak MYR. 
  • As annualised 4Q16 EBITDA is only 6% higher than our FY17 EBITDA estimate, we leave our earnings estimates largely unchanged. That said, GENS is confident of maintaining DPS at 3.0 cents pa. Therefore, we lift our FY17/FY18 DPS estimate from 2.5 cents/2.7 cents to 3.0 cents/3.0 cents.


Japan prospects unscathed, according to GENS 

  • Although DPS of 3.0 cents pa imply high DPRs of 80-90% going forward, GENS is confident it can gear up to bid for a Japanese integrated resort (IR) licence if the Implementation Bill is passed in 4Q17. It is targeting IR licences in either Osaka or Yokohama. 
  • GENS expects each IR to cost USD7b-USD12b, of which land will cost USD2b-USD3b. As its balance sheet position is net cash, GENS believes it has an advantage over its heavily geared competitors.


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/ 2017-02-23
Maybank Kim Eng SGX Stock Analyst Report BUY Upgrade SELL 1.10 Up 0.80





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