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.

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.

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.

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.

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.

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.

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 | http://research.itradecimb.com/ 2016-05-13

CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 0.86 Up 0.80