Genting Singapore - CIMB Research 2016-05-13: Encouraging signs in gaming business

Genting Singapore - CIMB Research 2016-05-13: Encouraging signs in gaming business GENTING SINGAPORE PLC G13.SI 

Genting Singapore - Encouraging signs in gaming business 

  • 1Q16 core net profit of S$65.7m was a slight miss to our expectations but a bigger miss to consensus. 1Q formed 21%/18% of ours/consensus FY16 forecast. 
  • The miss was from high bad debt charges which doubled qoq to S$92.4m. 
  • Market share of VIP/mass/overall GGR rose to 58%/41%/46%, in line with our expectations of RWS winning market share from MBS in 1Q. 
  • Maintain Add, with a higher DCF-based target price of S$0.86 (8% WACC) as we increase our terminal growth rate. Our EPS is trimmed by 2% on bad debt charges. 

Gaming volumes in line, but earnings miss on bad debt charges 

  • 1Q16 revenue rose 11% qoq to S$608m, lifted by 20% qoq higher net gaming revenue as VIP and mass gaming volumes bottomed out. However, profits were hit by an unexpected doubling of bad debt charges to S$92.4m from S$45.3m in 4Q15. 
  • As a result, adjusted EBITDA grew by a smaller 6% qoq to S$192.5m and core net profit rose 5% qoq to S$65.7m after excluding S$41.2m forex losses. 

VIP gaming has finally bottomed out 

  • 1Q16’s performance confirmed our view that GENS’s Resorts World Sentosa (RWS) has seen a bottom in its VIP gaming segment, with average daily rolling volume growing 4% qoq. 
  • RWS’s market share of rolling chip volume rose to 41% (4Q: 38%), while its VIP GGR market share rose to a higher 58% (4Q: 36%) as it had a better win rate of 2.9% vs. MBS’s 1.4%. This brought RWS’s market share of overall GGR to 46% (4Q: 38%). 
  • We continue to expect rolling chip volume to stabilise around current levels. 

Mass improved on better visitor arrivals and new strategy 

  • RWS’s market share of mass GGR edged up to 41% (4Q: 40%) after a long decline, led by strong market share gains in slot GGR (from c.40% to 44%). This is commendable given MBS’ strong competitive position in mass. 
  • Management credited the improvement to its repositioning to focus on key geographies and market segments. 
  • It is optimistic that the return of China and Indonesia tourists should filter through its gaming volumes. 

Bad debt to improve in 3Q16 with new credit collection policies 

  • While bad debt charges came in as a negative surprise in 1Q, management guided that the worst is likely to be over in 3Q as it chases after the remaining difficult accounts. 
  • GENS also implemented a new credit collection policy in Mar, with credit being extended for only 30 days compared to 90 days previously. 

Could redeem perpetuals after Sep 2017 if no overseas expansion 

  • In Mar-Apr 2012, GENS raised S$2.3bn in perpetuals (non-callable until Sep 2017) to fund its potential expansion into Japan. Given that: 
    1. Japan seems to be a remote possibility, 
    2. it has turned down investment opportunities in Asia where there is political instability, and 
    3. it is sitting on a cash pile of S$5bn and net cash of S$3.5bn (S$1.2bn excluding perpetuals),
  •  it is likely to redeem the securities next year. 

Maintain Add 

  • We maintain an Add, with a higher DCF-based target price of S$0.86 as we raise our terminal growth rate from 0% to 1% on better growth prospects. 
  • We have yet to factor in contributions from Resorts World Jeju, which is slated for soft opening in 4Q17. 
  • Further GGR market share gains and easing of bad debt charges are other potential catalysts.

Jessalynn CHEN CIMB Securities | Kenneth NG CFA CIMB Securities | 2016-05-13
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 0.86 Up 0.80