Genting Singapore - OCBC Investment 2016-02-19: Too early to place bets

Genting Singapore - OCBC Investment 2016-02-19: Too early to place bets GENTING SINGAPORE PLC G13.SI 

Genting Singapore: Too early to place bets 

  • FY core was 22% below estimate 
  • VIP segment to remain slow 
  • SELL with lower S$0.60 FV 

Disappointing end to FY15 

  • Genting Singapore (GS) saw 4Q15 revenue drop 14% YoY to S$547.4m, hit by weak VIP volumes as it continues to tighten credit in that segment; IR EBITDA fell 7% to S$181.4m, although hold adjusted basis EBITDA was S$237m. 
  • Still, due to a large one-off loss of S$79.8m, GS reported a net loss (after perpetuals) of S$7.8m, versus a net profit of S$89.2m in 4Q14; but if we excluded the one-off items, we estimate that core earnings would have come in around S$19m. 
  • For the full year, revenue fell 16% to S$2400.9m, or about 4% below our estimate, while reported net profit (after perpetuals) tumbled 85% to S$75.2m; core earnings would have come in around S$130m, or still about 22% below our forecast. 
  • GS declared a final dividend of 1.5 S cents, versus 1 S cent in FY14. 

VIP segment to remain challenging 

  • Going forward, GS says it will continue to “right size” its VIP business, noting that the collection of receivables remains “challenging”, which is probably a shade worse than the previous “difficult” description of the business. 
  • And while it expects to focus on the premium mass and mass market, GS concedes that RWS is a “huge” location disadvantage as compared to MBS; hence it would be difficult to bridge the gap. 
  • Nevertheless, GS has initiated several programs to target this affluent segment, including the use of brand ambassadors like actor Donnie Yen. 
  • On the other hand, GS remains upbeat about its non-gaming business, where its attractions have managed to draw in visitors despite the overall drop in tourist arrivals to Singapore last year. 

Good progress on Jeju 

  • Management also updated that it is making good progress in Jeju, where it is due to start construction of the hotels, retail and entertainment parts of the IR; it adds that the construction of the residential plot is advanced, and it expects to commence sales in 2Q16. 
  • As for Japan, there is likely still no clarity on the passing of the Casino Bill; but GS believes that it will still go through. 

Too early to place bets 

  • Given the uncertain economic outlook globally, we believe that there could still be room for casino revenues to ease in 2016; although we are hopeful of a recovery in 2017. 
  • Hence, our DCF-based fair value dips further from S$0.69 to S$0.60, and we retain our SELL rating.

Carey Wong CFA OCBC Securities | 2016-02-19
OCBC Securities SGX Stock Analyst Report SELL Maintain SELL 0.60 Down 0.69