Genting Singapore - Maybank Kim Eng 2015-11-13: VIP market troubles, D/G to HOLD

Genting Singapore (GENS SP) - Maybank Kim Eng 2015-11-13: VIP market troubles, D/G to HOLD GENTING SINGAPORE PLC G13.SI 

Genting Singapore (GENS SP) - VIP market troubles; D/G to HOLD 

  • 3Q15 results disappointed on record high doubtful debts. VIP volume share unlikely to recover, in our view. 
  • Cut EPS estimates by 8-29% and EV/EBITDA based TP from SGD0.86 to SGD0.78. 
  • Downgrade GENS from BUY to HOLD. Prefer GENT for cheaper valuation and earnings growth from its power segment. 

What’s New 

  • 3Q15 core net profit of SGD69.3m (-22% YoY, +1% QoQ) brought 9M15 core net profit to SGD205.2m (-54% YoY), which was below our expectation at 50% of our full year estimate. That said, 9M15 revenue of SGD1.9b (-17% YoY) was within our expectation at 76% of our full year estimate. 
  • The earnings shortfall was due to 3Q15 provision for doubtful debts hitting a new record of SGD92.5m. On 3Q15 gaming operations, we observed the following: 
    1.  VIP volume share fell 7ppts QoQ to 40% as GENS was wary of doubtful debts, and did not extend much credit to Chinese VIPs; and 
    2.  mass market gross gaming revenue (GGR) share eased 1ppt QoQ to 40%, despite Genting Jurong Hotel growing room inventory by 36% when it opened seven months ago. 

What’s Our View 

  • Going forward, GENS expects to be less generous in extending credit to Chinese VIPs and also expects provisions for doubtful debts to remain high until 2Q16 (please see p. 4 for more details). Therefore, we cut our FY15/FY16/FY17 EPS estimates by 29%/18%/8% to reflect lower VIP volume share and more provisions for doubtful debts. 
  • Ascribing an unchanged 8x EV/EBITDA to our FY16 estimates, we cut our TP from SGD0.86 to SGD0.78
  • Due to its poor results, we expect GENS’ share price to retreat. We downgrade GENS from BUY to HOLD. We prefer its 52% shareholder, Genting Berhad (GENT MK, BUY, TP: MYR9.20), as a cheaper alternative earnings growth from its power segment from 2017 onwards.

Yin Shao Yang Maybank Kim Eng | 2015-11-13
Maybank Kim Eng SGX Stock Analyst Report HOLD Downgrade BUY 0.78 Down 0.86