DBS Vickers 2015-08-14: Genting Singapore - 2Q15; Out of luck again. Maintain HOLD.


Out of luck again 

  • Loss of S$16.9m on FX and derivative losses. 
  • Lower overheads and 2% growth in mass partially offsets 35% decline in VIP rolling chip volumes. 
  • Outlook is uncertain given FX volatility, slowdown in China and normalisation of VIP market share. 
  • Maintain HOLD, TP lowered to S$0.84. 

2Q15 results below. 

  • Genting Singapore (GENS) reported 2Q15 net loss S$16.9m following its profit warning last week. This translated to 1H15 profit of S$45m, which represented only 10% of our original FY15F estimates The significant decline in profitability was due to losses on derivative financial instruments (-S$95m) which were related to GENS’ equity linked investments in gaming and hospitality stocks, for which GENS has since pared down. GENS was also hit by FX losses (-S$84m) as the decline in USD over 2Q impacted the value of its USD cash holdings. The majority of these losses should have since reversed given the rally in the USD over the past month. 

Reduction in overheads. 

  • Adjusted EBITDA was better than expected, falling 6% y-o-y to S$296.5m as GENS was able to reduce its overheads, and it experienced 2% growth in mass drop. This was despite a low VIP win rate of 2.1% and VIP rolling chip falling 36% yo-y as GEN’s market share normalised to 47%. 
  • For the second consecutive quarter, bad debts fell (S$57m vs. S$76 in 1Q15), as GENS continues to be careful on extending credit and collection remains a key focus. 
  • Going forward, given the potential impact from the recent volatility in MYR and IDR on visitor numbers and the weak YTD VIP performance, we now assume FY15F VIP rolling chip will decline by a larger 35% from 15% fall previously. This combined with derivative losses results in a 22% cut to our FY15F profit. 
  • However, due to lower depreciation expenses (change in the useful life) and overheads, our FY16-17F profit is lifted by 1-4%. On the back of prospects of rising interest rates (imputing higher risk free rate and cost of debt), we have also cut our TP to S$0.84 from S$0.96. 

Maintain HOLD. 

  • Given the backdrop of significant FX volatility, slowdown in China and normalisation of GEN’s VIP market share from mid to high 50’s in FY14 to 50% level, we believe the outlook for GENS still remains uncertain. Thus, with limited upside to our revised TP of S$0.84, we maintain our HOLD call.

Mervin SONG CFA | http://www.dbsvickers.com/ DBS Securities 2015-08-14
HOLD Maintain HOLD 0.84 Down 0.96