Genting Singapore - CIMB Research 2016-02-19: First signs of bottoming out

Genting Singapore - CIMB Research 2016-02-19: First signs of bottoming out GENTING SINGAPORE PLC G13.SI 

Genting Singapore - First signs of bottoming out 

  • 4Q15 core net profit missed expectations on poor rolling win rate, but gaming volumes were in line. FY15 core net profit at 94% of our and consensus forecasts. 
  • Market share of rolling chip and mass volume seem to have stabilised qoq at 38% and 40% respectively, showing signs of a bottom. 
  • DPS of 1.5 Scts declared, up from the 1.0 Sct paid historically. 
  • Upgrade to Add. Our FY16-18 EPS forecasts increase by 2-4% to reflect lower bad debt charges and better rolling chip volume. Our DCF-based TP rises to S$0.80. 

■ Overall a decent quarter – mass in line but VIP below on win rate 

  • 4Q15 core net profit of S$62.5m missed expectations on lower GGR, which was entirely attributed to a poor rolling win rate of 2.1% (3Q15: 2.8%). 
  • Underlying gaming volumes were actually in line with our expectations, with RWS maintaining its market share of rolling chip volume and mass GGR at 38% and 40%, respectively (unchanged over 3Q15). 
  • Management guides for the average daily rolling volume of S$96m in 4Q15 to be sustained in 2016, signaling that the VIP business is nearing a bottom. 

■ New initiatives to cross-sell from non-gaming to mass 

  • Given RWS’s shift in focus from VIP to mass, we see new targeted efforts to drive better mass GGR by cross-selling to non-gaming avenues. In 4Q15, RWS participated in the launch of the Michelin Guide Singapore, appointed Donnie Yen as a brand ambassador, and brought a record 1.2m visitors into Universal Studios Singapore (USS). Our base case assumes RWS’s mass GGR remains at 4Q15’s quarterly run-rate in 2016; we see upside to our numbers if the new initiatives take off and allow it to reclaim market share. 

■ Bad debt provisions improved in 4Q15; the true test will be in 2H16 

  • Bad debt provisions fell noticeably to S$45.3m in 4Q15 (3Q15: S$92.5m), the result of efforts to tighten its credit extension policies and manage the quality of its VIP players. When asked about the sustainability of the lower bad debt provisions, management only committed to lower provisions in 2H16 as it only extensively reviewed its credit extension policies in 2H15, and provisions typically relate to credit that was extend in the period 12 months prior. We forecast a 9% yoy fall in bad debt charges in 2016. 

■ Resorts World Jeju remains on track, strong demand for residential 

  • Construction of the integrated resort at Resorts World Jeju has started, while the residential plot will soon achieve a Temporary Occupation Permit (TOP). 
  • Demand for the residential units is showing encouraging signs, and sales will commence in Mar-Apr. 
  • Management continues to be optimistic on the prospects for Resorts World Jeju, given its proximity and connectivity to Northern China (multiple flights per day, visa-free entry for PRCs). 
  • GENS’s share of the capex for the project is estimated at US$250m in 2016. 

■ Upgrade to Add on signs of bottoming out 

  • Stabilisation of rolling chip volumes and new initiatives to draw in mass and premium mass players are encouraging signs which prompt us to turn more positive on GENS. 
  • The 50% higher DPS to 1.5 Scts is likely to be welcomed by the market. 
  • We tweak up our FY16-18F EPS forecasts on expectations of lower bad debt charges and higher rolling chip volume, and our DCF-based target price rises to S$0.80. 
  • Upgrade to Add. 

Jessalynn CHEN CIMB Securities | Kenneth NG CFA CIMB Securities | http://research.itradecimb.com/ 2016-02-19
CIMB Securities SGX Stock Analyst Report ADD Upgrade HOLD 0.80 Up 0.73