Genting Singapore (GENS SP) - Great Start To 2017
Maintain BUY and SGD1.25 TP
- Although we lifted our estimates recently, 1Q17 core net profit still outperformed our expectation.
- Trade receivables impairments in 1Q17 was a record low and we gather that they may trend even lower going forward.
- On another note, we lift our core net profit estimates by 4-14% as GENS will redeem its SGD2.3b perpetual bonds in Sep/Oct 2017.
- Our SGD1.25 TP based on 12x FY17E EV/EBITDA, its eight-year mean, is unchanged as our EBITDA estimates were not lifted.
1Q17 earnings outperformed our expectation
- 1Q17 core net profit of SGD152m was above our expectation as it accounted for 29% of our full-year estimate. That said, 1Q17 revenue of SGD586.6m was within our expectation as it accounted for 26% of our full-year estimate.
- The earnings outperformance was due to:
- 1Q17 VIP win rate of 2.95%, which was 10bps higher than we expected; and
- 1Q17 trade receivables impairments of SGD15m, a record low and SGD6m less than we expected.
Record-low bad debts expanded EBITDA margin
- Thanks to the record-low trade receivables impairments, 1Q17 Resorts World Sentosa EBITDA margin of 48.9% was the highest since 1Q12.
- Going forward, we gather that trade receivables impairments may trend even lower as the 1Q17 trade receivables balance eased 14% QoQ to SGD170.7m.
- Although the 1Q17 trade receivables balance indicates tighter credit extension, the 1Q17 VIP volume of SGD6.8b was flattish QoQ. This suggests to us that demand for its VIP product has troughed.
Raised core net profit estimates by 4-14%
- We maintain our revenue and EBITDA estimates. That said, we lift our FY17/FY18/FY19 core net profit estimates by 4%/14%/13% as GENS also announced that it will redeem its SGD2.3b perpetual bonds on 12 Sep 2017 (SGD1.8b) and 18 Oct 2017 (SGD0.5b).
- Notwithstanding the redemption, GENS is still comfortable with declaring annual DPS of SGD0.03 and does not believe that its ability to gear up to bid for a Japanese integrated resort licence has been impaired.
- VIP win rate - If VIP win 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.
- VIP win rate – If VIP win 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.