RHB Securities 2015-08-14: Genting Singapore - Opportunistic Buying On Weakness. Upgrade to TRADING BUY.


Opportunistic Buying On Weakness 

  • 1H15 core profit of SGD194.0m fell short of expectations at 37.9%/40.9% of our/consensus full-year forecasts, as its VIP hold again closed at a low of 2.1% in 2Q15. Luck aside, bad debt provisions improved to SGD56.6m (-25.8% QoQ, -30.6% YoY) as its stringent credit control is starting to bear fruit. 
  • Upgrade to TRADING BUY with our TP fine-tuned to SGD1.02 (from SGD1.03, 30% upside) following the recent selldown. 

 Results review. 

  • 1H15 revenue dived 22.9% YoY to SGD1.22bn while core profit sank 53.5% YoY to SGD194.0m, as its VIP volume declined 42% YoY while hold rate averaged at 2.3% (vs 3.0% previously). 
  • We estimate that bottomline would have closed at SGD250m-270m assuming a theoretical VIP hold of 2.75%. 2Q15 revenue of SGD578.1m and core earnings of SGD98.3m were weaker YoY, dragged by its VIP luck factor which sank to a low of 2.1% (3.0% in 2Q14). 

 Key highlights. 

  • Management reiterated its cautious medium-term outlook due to China’s continued push to eradicate corruption as well as the appreciation of the SGD against its regional currencies. That said, its 2Q15 bad debt provisions improved significantly to SGD56.6m (-25.8% QoQ, -30.6% YoY). 
  • We attribute this to management’s stringent credit control as well as tightening of collection procedures over the past 6-9 months. The group registered net exceptional expenses of SGD85.9m due to recognition of a fair value loss on its equity-linked derivative financial instruments as well as an unrealised loss on foreign exchange due to its holdings of HKD and USD currencies. 

 Forecasts revision. 

  • We cut our FY15F EPS by 11.5% to factor in the subpar YTD VIP hold. 
  • We also reduce our FY16-17F EPS by a marginal 3.3-4.9% by tweaking our opex structure to reflect higher marketing expenses in order to entice gamblers’ visitation interest. 

 Upgrade to TRADING BUY. 

  • Genting Singapore is currently trading at 5.3x 2016 EV/EBITDA, which implies an appealing discount of 47%/57% over its historical mean/Macau gaming peers of 10.0x/12.2x. 
  • While we acknowledge that the operating environment remains challenging, we believe the worst is likely over. 
  • Pegging an unchanged 8.5x 2016 EV/EBITDA (which implies a 30% discount over its Macau peers given the more stringent regulatory control in Singapore’s gaming industry and at 1.5x standard deviation below its historical mean), our SOP-based TP now stands at SGD1.02 (from SGD1.03). 
  • Given the appealing upside of 30%, we upgrade our call to TRADING BUY (from Neutral).

Singapore Research | http://www.rhbgroub.com/ RHB Securities 2015-08-14
TRADING BUY Maintain HOLD 1.02 Down 1.03