Maybank Kim Eng Research 2015-07-24: Genting Singapore - Signs of stabilisation from MBS. Maintain HOLD.

Signs of stabilisation from MBS 

  • Many signs of stabilisation in MBS’s 2Q15 results. Expect GENS 2Q15 EBITDA of SGD275m (+20% QoQ). 
  • Raise EPS by 2-5% for GENS on lower depreciation. Lift SOTP based TP by 1% to SGD0.98
  • Still HOLD pending more evidence of stabilisation. Prefer Genting Malaysia (GENM MK, BUY, TP: MYR4.60) in the region.

What’s New 

  • MBS’s 2Q15 EBITDA came in at USD363.3m (-13% YoY, -13% QoQ). This was driven by a VIP win rate of 2.78%.
  • As this was within its theoretical range, we see MBS’s 2Q15 EBITDA as a good indicator of its future quarterly EBITDA.
  • We note a few positives for GENS from MBS’s results:
    1. MBS’s VIP volume was down only 6% QoQ (Macau: -12% QoQ),
    2. its rebate rate was stable QoQ at 1.34% of VIP volume,
    3. its bad debts fell to USD20m, their lowest since 2Q11; and
    4. its mass-market GGR was still flat QoQ.

What’s Our View 

  • MBS did not raise rebate rates, which would have cut margins. Yet, its VIP volume eased by a narrower percentage than Macau’s. This tighter credit policy also brought down its bad debts to a 4-year low.
  • Mass-market GGR was, in addition, admirably flat QoQ despite new lows for ASEAN currencies against the SGD then.
  • We expect GENS’s 2Q15 VIP volume to be flat QoQ at SGD12-13b and its rebate rate to be flat QoQ at 1.4-1.5% of VIP volume. That said, GENS did warn us that its 2Q15 bad debts could remain high at SGD70-80m.
  • Assuming a VIP win rate of 2.85%, we expect a 2Q15 EBITDA of SGD275m, up 20% QoQ.
  • We leave our EBITDA unchanged but raise EPS by 2-5% on lower depreciation.
  • Accordingly, we lift our SOTP-based TP from SGD0.97 to SGD0.98.
  • Although we are heartened by MBS’s 2Q15 results which suggest that the worst may be over for GENS, maintain HOLD pending more evidence of stabilisation.

(Yin Shao Yang)