Genting Singapore - DBS Research 2015-11-13: Not out of the woods yet

Genting Singapore - UOB Kay Hian 2015-11-13: 3Q15 ~ A Game Of Endurance GENTING SINGAPORE G13.SI 

Genting Singapore - Not out of the woods yet 

  • 50% fall in VIP rolling chip and unexpected spike in bad debts contributed to 18% fall in adjusted EBITDA 
  • Continued losses on investment portfolio 
  • Management remaining cautious on credit availability to clients; bad debts to remain elevated until at least 2H16 
  • Maintain HOLD, TP lowered slightly to S$0.76. 

3Q15 results below. 

  • Genting Singapore (GENS) delivered another disappointing set of results, with adjusted EBITDA falling 18% y-o-y to S$209m. 
  • Despite the recovery in the VIP win rate (3Q15: 2.8% vs 3Q14: below 2%) GENS was impacted by the 50% y-o-y drop in rolling chip volumes as it remains cautious on extending credit. In contrast, MBS appears to be more bullish as demonstrated by the 25% growth in its rolling chip. 
  • GENS’ cautiousness and general softness in its mass business (mass drop and slot handles fell an estimated 20% and 8% respectively) resulted in GENS’ overall market share dropping to 40%. 
  • The results were also impacted by a spike in bad debts to S$92m, reversing the decline seen over the last three quarters, as GENS implemented a more conservative provision policy. 
  • Combined with losses on its investment portfolio (-S$63m) and derivative financial instruments (-S$61m), overall 3Q15 profit fell 62% to S$37m. 

Muted guidance. 

  • GENS guided that it will scale back its VIP business given a “new normal” in terms of credit availability. This is due to reduced visibility over the financial health of its Chinese VIP customers, coupled with GENS’ lack of presence in other casino markets, impacting its ability to screening the same clients. However, it remains open for business for South East Asian clients. 
  • Furthermore, earnings will also be hit by higher bad debt provisions until at least 2H16, as GENS implements more conservative accounting policies. 
  • Given the muted outlook commentary, we now expect FY15F and FY16F VIP rolling chip volumes to fall 44% and 5%, from -35% and 0% respectively. This results in our FY15-16F core earnings dropping 2-24%. However, we have upped our FY17F earnings 11% higher, on a potential recovery following three years of market declines. 

Maintain HOLD. 

  • While we expect a recovery in earnings next year, largely due to normalisation of GENS’ win rate, there remains significant earnings risk given headwinds from regional FX volatility and slowing Asian economies. 
  • Thus, coupled with limited upside to our revised TP of S$0.76, we maintain our HOLD recommendation.

Mervin SONG CFA DBS Vickers | http://www.dbsvickers.com/ 2015-11-13
DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 0.76 Down 0.77