Genting Singapore - UOB Kay Hian 2016-02-19: 4Q15 Mixed Signals; Keeping Faith For A Better 2016

Genting Singapore - UOB Kay Hian 2016-02-19: 4Q15 Mixed Signals; Keeping Faith For A Better 2016 GENTING SINGAPORE PLC G13.SI 

Genting Singapore (GENS SP) 4Q15: Mixed Signals; Keeping Faith For A Better 2016 

  • While it is no surprise that 4Q15 adjusted EBITDA remained weak – falling 13% qoq and 5% yoy to S$181m, resulting in 2015 EBITDA undershooting our forecast by 9% – and dividends were only increased modestly, we maintain BUY as investor misgivings on the company continue to be overly pessimistic. 
  • Catalysts include the bottoming out of regional gaming peers (especially Macau gaming), and sharply lower impairment of provisions. 
  • Maintain BUY. Target price: S$0.97. 


RESULTS 


• Below expectations. 

  • Genting Singapore’s (GENS) 4Q15 core adjusted EBITDA of S$181m (-13.4% qoq, -4.7% yoy) was 30% below our expectation, which the company attributed mainly to another quarter of low win percentage of 2.1% in the VIP segment. However, the luck-normalised adjusted EBITDA would have been much better at S$237m, although the luck-adjusted EBITDA would still have been about 10% below our expectation. 
  • For full-year 2015, core adjusted EBITDA is S$812m, which represents 91% of our and consensus’ 2015 forecasts. 
  • Adjusted for luck factor, 2015 normalised core adjusted EBITDA would have been S$988m, according to the company. 

• VIP market still falling due to right-sizing strategy, but seen as stabilising. 

  • Similar to 3Q15, 4Q15’s VIP segment saw a drastic drop in rolling chip volume (RCV), dropping by about 42% yoy and 18% qoq. Nevertheless, the company’s estimated S$8.7b RCV in 4Q15 is the lowest since its opening in 2010. 
  • RWS’ 4Q15 VIP volume market share is estimated to have dropped to 38% (3Q15: 40%, 4Q14: 54%). The volume drop does not come as a major surprise given that RWS has been prudently right-sizing its credit extension to credit-worthy VIP players throughout 2015. 
  • Positively, management thinks that the RCV has plateaued in 4Q15 and is sustainable going forward, with which we agree. 

• Mass market also saw some weakness. 

  • On a qoq basis, RWS’ mass market nonrolling chip drop also eased qoq by mid-single digits. 4Q15 mass market GGR market share stood at about 40%, slightly lower than the 42-43% range seen in both 4Q14 and 3Q15. 

• Positively, impairment came down. 

  • GENS’ 4Q15 receivable impairment was significantly lower at S$45m (3Q15: S$92m, 4Q14: S$82m) and total receivables outstanding eased further S$646m (3Q15: S$773m, 4Q14: S$1.1b). 
  • This trend is in line with our assessment, and ahead of management’s previous guidance for impairment to be only noticeably lower from 2H16 onwards. 

• Capital management activities, including a 50% hike in DPS to 1.5 S cent, still has plenty of room for improvement. 

  • While GENS commendably declared a final dividend of 1.5 S cent for 2015 (2014: 1.0 Scent), much more could be done given its highly cash generative business and high net cash position of S$1.2b (after treating $S2.3b perpetual securities as debt). 
  • We note that GENS’ net cash continued to grow in 4Q15 by S$209m (after adjusting for proceeds from financial assets disposal and loan to an associate). 


STOCK IMPACT 


• The current VIP RCV level is likely sustainable; normalisation in win rate would provide yoy GGR growth. 

  • After seven consecutive qoq drops in RCV, management expects 4Q15’s average daily RCV of S$96m to be sustainable in 2016. 
  • In combination with our base assumption of RWS’ win rate normalising, 2016 EBITDA would show a meaningful jump yoy (note: three out of four quarters in 2015 recorded below-theoretical win rate). 

• Provisions to be significantly lower in 2H16. 

  • Management expects bad debt provisions to be significantly lower in 2H16 as it has right-sized its credit extension to the mainland Chinese VIP gamers, while maintaining its credit policy on Asean VIP customers. 
  • Unlike rival Las Vegas Sands which also operates in Macau, GENS has relatively limited capability in reading the creditworthiness of the mainland Chinese VIP players. 

• US$250m capex for Jeju project in 2016. 

  • In its Korean Jeju project, the construction of hotel and entertainment area has started, with structural works for the casino expected to start next week. The estimated 2016 capex for the Jeju project would be US$500m, with GENS’ portion of US$250m to be injected into the JV. 
  • Meanwhile, GENS is encouraged by the initial response to the JV’s pre-launching of two parcels of residential properties. 

• Lesser uncertainty from derivative loss moving forwards. 

  • In 4Q15, GENS disposed almost all its derivative financial instruments, vs the heavy exposure of S$142m and S$1.3b in 3Q15 and 4Q14, respectively. Despite causing a non-core loss of S$80m in 4Q15, the disposal eliminates an unnecessary distraction to investors. 
  • While management remains optimistic on Japan’s prospect of legalising casinos, the timeline is unclear for now. 


EARNINGS REVISION 

  • None. 


VALUATION/RECOMMENDATION 

  • Maintain BUY and target price of S$0.97, which implies 2016F EV/EBITDA of 11x (our calculation treats GENS’ perpetual securities as debt). 
  • GENS is currently trading at 7.7x 2016F adjusted EV/EBITDA.



Vincent Khoo CFA UOB Kay Hian | Yeoh Bit Kun UOB Kay Hian | http://research.uobkayhian.com/ 2016-02-19
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 0.97 Same 0.97


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