CIMB Securities 2015-08-13: Genting Singapore - 2Q15; Cheap valuation, but for a reason. Maintain HOLD.


Cheap valuation, but for a reason 

  • 1H15 earnings were hit by a double-whammy of falling rolling chip volumes and poor luck factor, which resulted in a significant fall in GGR. 2Q15 saw the added impact of fair value and exchange losses; even after excluding these one-off items, GENS’s 1H15 core net profit of S$136m came in below expectations at 15% of our and consensus full-year forecasts. 
  • Management continues to have a cautious outlook on the VIP gaming segment amidst a worsening credit environment, and a new area of concern is the volatility in ASEAN currencies. 
  • We maintain our Hold call, but cut our FY15-17 EPS by 17-21% to adjust for lower rolling chip volumes, partly offset by lower costs. 
  • Our DCF-based target price falls to S$0.81 (8% WACC). 

2Q hit by poor luck factor and one-off losses 

  • Excluding a one-off S$102.7m property tax refund, 2Q15’s adjusted EBITDA came in at S$194m (-15% qoq, -38% yoy). 
  • The poor performance was mainly due to the poor rolling win percentage of 2.1% - the fourth consecutive quarter it has fallen below its long-term average of 2.85%. This led to the decline in RWS’s market share of rolling chip volume by 1% pt qoq to 47%. 
  • In 2Q, GENS also recognised: 
    1. a S$95m fair value loss relating to investments in listed gaming peers via compound financial instruments, and 
    2. S$84m unrealised net exchange loss as it held cash in HK$ and US$ worth more than US$1bn. 

Outlook remains bleak… 

  • Management has turned much more cautious in extending credit to VIPs due to the economic situation in China, and has tightened credit collection procedures significantly. 
  • We believe this will continue to put downward pressure on rolling chip volumes over the next year, which fell 36% yoy in 2Q. 
  • While impairment of trade receivables fell 26% qoq to S$56.6m in 2Q, we would not be surprised if the dip is temporary amidst a worsening credit environment. Also, the depreciation of ASEAN currencies may affect visitation from Malaysians and Indonesians who are the key source of mass and premium mass players. 

…but there may be some respite in the storm 

  • Positives to look forward to: 
  1. RWS achieved a 43% market share of mass volumes in 2Q (+2% pts qoq); we believe the opening of Genting Hotel Jurong in Jul will drive higher mass visitation to RWS in 2H15. 
  2. Payroll expenses fell in 2Q due to attrition, a trend which we believe can continue if RWS reduces manpower amidst lower VIP volumes. 
  3. Management raised the possibility of increasing dividends in FY16 after there is further clarity on Japan.

Jessalynn CHEN | Kenneth NG CFA | CIMB Securities 2015-08-13
HOLD Maintain HOLD 0.81 Same 1.02