Genting Singapore - CIMB Research 2015-11-12: Better luck but not out of the woods yet

Genting Singapore - CIMB Research 2015-11-13: Better luck but not out of the woods yet GENTING SINGAPORE PLC G13.SI 

Genting Singapore Better luck but not out of the woods yet 

  • 3Q15 core net profit of S$69.3m fell short of expectations. 9M15 formed 56%/58% of our/consensus full-year forecasts. 
  • Rolling chip volume declined by a wider margin than we expected (-20% qoq, -50% yoy) and versus rival Marina Bay Sands (MBS, +20% qoq, +36% yoy in S$ terms). 
  • We cut FY15-17 EPS by 11-25% for expected lower rolling chip volume, fall in mass GGR market share and higher bad debt charges at Resorts World Sentosa (RWS). 
  • Maintain Hold, given the challenging outlook in the VIP gaming segment. 

3Q15 earnings broadly flat qoq despite better luck factor 

  • GENS reported 3Q15 adjusted EBITDA of S$209.2m (+8% qoq, -18% yoy). 
  • Net gaming revenue came in at S$451.8m in 3Q (+5% qoq, -5% yoy), helped by a higher rolling win rate of 2.8% (2Q: 2.1%). 
  • Luck factor improved in 3Q after four consecutive quarters of win rate below the theoretical average of 2.8%. However, the positives were offset by higher bad debt charges, which rose to S$92.5m (2Q15: S$56.6m) and are expected to remain high until 2H16. 
  • Core net profit disappointed at S$69.3m (+1% qoq, -22% yoy). 

VIP remains challenging- did not see same uptick as MBS 

  • In 3Q, MBS reported the best rolling chip volume in six quarters (+20% qoq, +36% yoy in S$). The market anticipated a similar uptick at RWS but that did not materialise, as we expected. However, the magnitude of the drop was a surprise- RWS’s rolling chip volume fell 20% qoq and 50% yoy to S$9bn in 3Q, which dragged its market share to a new low of c.40% (2Q: 48%). 
  • Management explained that its disadvantage is not having a presence in other VIP gaming markets to better gauge customers’ credit worthiness. 

GHJ led to stronger visitor numbers at attractions, not the casino 

  • The mass gaming segment fared slightly better, with volumes broadly flat qoq in 3Q. However, RWS’s mass GGR market share fell to 40% in 3Q (2Q: 43%) as MBS continues to have a competitive advantage in terms of location. This was disappointing as the 550-room Genting Hotel Jurong (GHJ) that opened in Jul was expected to drive higher mass visitation to RWS. Instead, the positives showed up in non-gaming revenue, with average daily visitation to its attractions rising 17% yoy to above 21,000 in 3Q. 

Near-term earnings outlook remains weak 

  • Management guided that it continues to scale back on the VIP business by tightening credit extension, in line with a new norm. It does not see an upturn in VIP business from China anytime soon but continues to pursue business from ASEAN customers. 
  • Bad debt charges are expected to remain high until 2H16, as it continues to provide for credit extended 12-18 months ago. 
  • GENS is also embarking on management realignment in its mass and premium mass segments, which should drive revenue in 1Q16 onwards. 

Maintain Hold 

  • We cut FY15-17 EPS by 11-25% on expectations of lower rolling chip volume, fall in mass GGR market share and higher bad debt charges. However, our DCF-based target price is unchanged as we roll over to CY16. 
  • RWS’s VIP gaming segment remains challenging, while its strategy of shifting focus from VIP to mass has not yielded results, as its market share continues to erode despite the opening of GHJ. 
  • We advise investors to remain on the sidelines until we see clearer signs of earnings trough. 
  • Maintain Hold.

Jessalynn CHEN CIMB Securities | Kenneth NG CFA CIMB Securities | 2015-11-12
CIMB Securities SGX Stock Analyst Report HOLD Maintain HOLD 0.81 Same 0.81