Maybank Kim Eng 2015-08-14: Genting Singapore - Poor 2Q but Worthwhile Bet; U/G to BUY.


Poor 2Q but Worthwhile Bet; U/G 

  • 2Q15 core results missed due to low VIP hold rate. Hold-adjusted results would have been in line. 
  • Cut FY15 core EPS by 20% solely for low VIP hold rate & SOTP TP by 10% to SGD0.88 but upgrade to BUY from HOLD. 
  • Catalysts: 
    1. VIP hold rate should normalise; 
    2. VIP volume stabilising; 
    3. Jurong hotel to win mass-market share; 
    4. derivative losses to narrow and 
    5. low P/BV valuations. 

What’s New 

  • 2Q15 reported net loss of SGD16.9m was due to derivative and forex losses of SGD95m and SGD84m respectively. 
  • Excluding the exceptional losses, 2Q15 core net profit of SGD68.9m was still below due to a below-theoretical VIP hold rate of 2.1%. 
  • 1H15 core net profit formed 32% of our FY15F. 
  • 2Q15 core results would have been in line if the VIP hold rate had been a normal 2.85%. 
  • As such, we cut FY15 core earnings by 20% only to account for a full-year below-theoretical VIP hold rate of 2.60% (2.85% previously). 
  • We trim FY16-17 core earnings by only 2% for housekeeping changes. 

What’s Our View 

  • We also roll forward our SOTP valuation from 9x FY15 EV/EBITDA to a more conservative 8x FY16 EV/EBITDA and cut our TP from SGD0.98 to SGD0.88. 
  • Despite its first reported loss since 4Q10, we upgrade GENS from HOLD to BUY
  • This is due to five reasons: 
    1. its VIP hold rate and thus, earnings, should normalise at higher levels; 
    2. Figures 3 and 6 suggest that industry VIP volume is beginning to stabilise; 
    3. Genting Hotel Jurong will accommodate more mass-market gamblers; 
    4. derivative losses should narrow as exposure to underlying financial instruments has been halved; and 
    5. GENS is trading at only 1.3x P/BV or 0.1x higher than sister company GENM’s GFC trough, which suggests limited downside risks.

Yin Shao Yang | http://www.maybank-ke.com.sg/ Maybank KE 2015-08-14
BUY Upgrade HOLD 0.88 Up 0.98