Genting Singapore - Off To A Strong Start
- Genting Singapore’s 1Q17 results sprang positive surprise as its bad debt provision improved further to SGD15m. The group is looking to fully redeem its outstanding perpetuals of SGD2.3bn by Oct 2017, and is likely to optimise its balance sheet, in our view.
- At the same time, management reaffirms its intention to expand its presence into Japan once the local regulators firm up the development plan.
- Maintain NEUTRAL with our DCF-based TP revised to SGD1.04 (from SGD0.93, 4% downside), following our earnings forecast changes.
1Q17 results review.
- 1Q17 core earnings of SGD181m came above both our/consensus expectations at 38.1%/40.5% of full-year estimates respectively. This was driven by its lower-than-expected bad debt provision, which improved further to SGD15m (from SGD92.4m/38.9m in 1Q16/4Q16) vis-à-vis our previous anticipation of SGD150-200m pa.
- Management believes the current level could be sustainable in the long run, owing to its continued efforts in collections as well as selective credit offerings.
Redemption of perpetuals.
- Management announced its intention to fully redeem its outstanding perpetuals of SGD2.3bn by Oct 2017. This would be financed by its existing cash pile of SGD5.6bn. We see this as a strategic move to optimise its balance sheet, given that its Resorts World Sentosa (RWS) operations are gradually maturing.
- We believe Genting Singapore would re-enter the debt market, should its venture into the Japanese gaming market materialise.
To reinvest in RWS.
- On a side note, the group announced during its analyst briefing its plan to reinvest in RWS to rejuvenate visitation interest to the seven- year-old integrated resorts. Management did not commit to any numbers for the time being, pending regulatory approvals.
- We expect major facelifts across its existing infrastructure and do not discount the possibility of introduction of new family-friendly facilities to increase its appeal as one of the most preferred family holiday destinations in the region.
- We are currently allocating for annual capex of MYR200-250m for 2017-2019.
All out on Japan.
- Management expects official bidding for Japan’s integrated resorts to take place by mid-2018. It is hoping for legalisation of the gaming bill by 4Q17. The group reaffirmed its openness towards forming joint ventures with local institutions to enhance its chances of winning. It has recently set up a taskforce to study and evaluate all possible investment options, as management is exploring the possibility of participating in more than one bid.
Forecasts and risks.
- We upgrade our FY17F-19F EPS by 4-13% as we lower our bad debt provision to SGD80-100m pa (from SGD150-200m) in view of the improving book quality.
- Key risks include the volatility in win rates and potential weakness in tourist arrivals to Singapore due to the strengthening of the SGD against regional currencies.
- Maintain NEUTRAL with our DCF-derived TP revised to SGD1.04 (from SGD0.93) following our earnings revision and to capture its latest net cash position.
- While we are glad to see further improvement in its bad debt provisions, the dearth of re-rating catalysts for both the VIP and mass market volumes prompts us to keep our cautious stance going forward.