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
- a slowing VIP market due to the anti-corruption crackdown in China,
- GENS scaling back its VIP business, and
- 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
0.77
Same
0.77
