Genting Singapore - DBS Vickers 2015-09-08: Luck Still Yet To Turn.

GENTING SINGAPORE PLC G13.SI 

LUCK STILL YET TO TURN 


Weak earnings momentum. 

  • We maintain our HOLD call on Genting Singapore (GENS) given weak earnings momentum on the back of 
    1. a slowing VIP market due to the anti-corruption crackdown in China, 
    2. GENS scaling back its VIP business, and 
    3. significant FX volatility potentially affecting visitor numbers from Malaysia and Indonesia, two key markets for GENS. 

Slowing VIP market. 

  • GENS’ core VIP business faces the challenge of a slowing market as VIP customers have avoided casinos across Asia to avoid scrutiny of the Chinese government in the midst of the anti-corruption and austerity drive. This contributed to 1H15 VIP rolling chip for GENS falling 43% y-o-y. 
  • Combined with the slowing Chinese economy, GENS tightening its tightening its credit criteria to reduce risk of bad debts and market share normalising back to the 50% level, we expect a 35% decline in VIP rolling chip in FY15 and zero growth in FY16 (in US$ terms). 

Concerns partially offset by strong balance sheet. 

  • While the near term outlook is challenging, GENS remains in a strong financial position with net cash of cS$2.8bn. Thus, it is well positioned to take advantage of new casino markets or to conduct share buy backs to temper any share price declines. 


Valuation: 

  • In our recent Singapore strategy report entitled “How deep can the bear claw?”we cut our DCF-based TP to S$0.77 from S$0.84. This incorporates the impact from more challenging macroeconomic conditions. 
  • We now assume zero growth in VIP rolling chip and mass hold in FY16F versus 4% and 3% previously. Our valuation does not include the proposed Jeju integrated resort, given limited details on the project. 


Key Risks to Our View: 

  • Turnaround of VIP business and award of Japan casino license. While we maintain our cautious stance, a re-rating could occur on the back of a sustained recovery in the VIP market. 
  • Further upside could also arise if Japan legalises casinos and GENS is awarded a license to build an integrated resort. As yet the casino bill has not been passed by the Japanese Diet. In 
  • addition, there is considerable uncertainty over the location, tax structure, timing of when an integrated resort would be built and whether a casino will allow local Japanese patrons.

Mervin SONG CFA | http://www.dbsvickers.com/ DBS Securities 2015-09-08
HOLD Maintain HOLD 0.77 Same 0.77


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