Genting Singapore (GENS SP) - UOB Kay Hian 2017-08-03: 2Q17 Another Decent Quarter

Genting Singapore (GENS SP) - UOB Kay Hian 2017-08-03: 2Q17 Another Decent Quarter GENTING SINGAPORE PLC G13.SI

Genting Singapore (GENS SP) - 2Q17 Another Decent Quarter

  • GENS delivered another set of decent results, although the earnings growth was driven by operational improvement and luck factor, rather than gaming volume growth. 
  • We foresee the shares to be range-bound until the next growth leg, which will take place closer to the period for RFP (request for proposals) for the Japan IR bidding. 
  • Maintain HOLD. Target price: S$1.15. Entry price: S$1.05.


RESULTS


Slightly above expectations. 

  • Genting Singapore (GENS) reported a 2Q17 core adjusted EBITDA of S$293m (+3.4% qoq, > 100% yoy), bringing 1H17 to S$576m, representing 56% and 55% of our and consensus full-year forecasts respectively. 
  • The better-than-expected results were partly due to its better-than-theoretical win rate of 3%, and to a smaller extent, better cost efficiency. 
  • GENS’ decent results since 1Q17 suggest sustainable business and margin (notwithstanding luck factor) moving forward.

Impairment of receivables remains at S$15m. 

  • After a dramatic drop in impairment of receivables in 1Q17, the impairment of gaming receivables in 2Q17 has been maintained at 1Q17s’s S$15m (2Q16: S$54m). 
  • GENS is comfortable with the current situation and expects the impairment level to remain the same or lower in the future.

VIP: Improved GGR due to better win rate, volume remains weak. 

  • Unlike its rival Marina Bay Sands which saw strong recovery in rolling chip volume (RCV), GENS’ RCV is still hovering at the lower range. We estimate that its RCV has dropped 10% yoy and 8% qoq, with 2Q17’s RCV value being the second lowest since RWS’ inception. 
  • 2Q17’s win rate was at 3%, significantly higher than 2Q16’s 1.7%. 
  • GENS’ poorer RCV trend reflects its circumspect credit policy.

Mass market: GGR improved yoy. 

  • Positively, we estimate that the mass market GGR grew at a mild 3% yoy (the first positive growth since 2Q16), mainly driven by the premium mass market. 
  • Market share for the mass drop (both table and slot) at 41%, a tad higher yoy. On a qoq basis, 2Q17’s mass market GGR dropped 3% from the seasonally stronger 1Q17.

All in all, GENS’ gaming revenue up 33% yoy and 2% qoq in 2Q17. 

  • We estimate GENS’ total GGR market share stood at 34% (2Q16: 35%, 1Q17: 38%). Hold-adjusted GGR market share was 38%, according to management.


STOCK IMPACT


Still cautious on business outlook. 

  • Despite the decent results in 1H17, GENS remains cautious on its business outlook, citing uncertainties at its target markets such as China tightening policy on capital outflow, and Malaysia market’s sentiment possibly being affected by the upcoming election and continuously weak ringgit.

Working on a 5-year roadmap to boost visitor arrivals. 

  • GENS is working on a 5-year roadmap to strengthen RWS’ appeal as a lifestyle destination. 
  • No details have been revealed but management shared that it is currently in talks with government on the matter and hopeful to provide more information by end-17.

Declares interim dividend of 1.5 S cents per share. 

  • GENS has declared 1.5 S cents DPS. Management highlighted that GENS will dish out dividends twice a year in the future. 
  • We make no change on our assumption of 3.0 S cents DPS for 2017, representing yield of 2.5%

Positive on the progress of the Japan IR execution bill. 

  • GENS is positive on the development progress of the establishment of casino gaming industry in Japan. With the authority now in the midst of finalising the basic regulatory framework and public hearing to be held in August, GENS expects the second bill to be submitted to the National Diet session this autumn. 
  • GENS also clarified that the framework does not restrict the bidders’ participation in the number of locations to be bid on. GENS’ interest remains at Osaka and Yokohama.

Redemption of S$2.3b perpetual securities via internal fund. 

  • On the redemption of perpetual securities of S$2.3b in Sep 17 and Oct 17, GENS will be using its internal funds for the purpose, and has no intention of refinancing. 
  • Post the redemption, GENS will still be sitting on a strong net cash pile of S$4.7b (representing 33% of market cap), based on 2Q17’s balance sheet.


EARNINGS REVISION

  • We revise our EBITDA forecast upward by 3-4% in 2017-19 to reflect better win rate for 2017 and fine-tune our operating costs assumption.


VALUATION/RECOMMENDATION


Maintain HOLD on GENS with unchanged target price of S$1.15. 

  • Our TP has imputed a 10 S cents Japan ‘option value’ (assumption: 30% success rate, US$10b development cost with IRR 13% and 50% JV stake). 
  • Target price of S$1.15 implies EV/EBITDA of 11.1x and 10.5x in 2017-18, respectively. 
  • Entry price: S$1.05.




Vincent Khoo CFA UOB Kay Hian | Yeoh Bit Kun UOB Kay Hian | http://research.uobkayhian.com/ 2017-08-03
UOB Kay Hian SGX Stock Analyst Report HOLD Maintain HOLD 1.150 Same 1.150



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