GENTING SINGAPORE PLC
G13.SI
Genting Singapore - Still yet to fully turnaround
- Adjusted EBITDA fell 16% y-o-y – in line
- VIP rolling chip volumes down c.34% y-o-y with bad debts spiking to S$92m from S$45m in 4Q15
- Potential capital management in 2017 if there is a lack of investment opportunities
Bottoming out but risk remains.
- We maintain our HOLD call on Genting Singapore (GENS) with a revised TP of S$0.79.
- While GENS’ earnings are bottoming out after a challenging 1.5 years and we expect earnings to pick up in 2H16, GENS is likely to still report a y-o-y decline in earnings for the next quarter with bad debts remaining an issue.
VIP business a near term drag.
- We expect the VIP business to remain a drag on GENS’ near term earnings as
- bad debts could continue to be elevated and
- rolling chip volumes could fall as GENS remains cautious and tightens its credit criteria to mitigate against potential future bad debts.
- Overall, we project a c.21% decline in VIP volumes this year.
Potential capital management.
- While the near term outlook is challenging with net cash of c.S$3.6bn, GENS is in a strong position to take advantage of opportunities in new casino markets. However, should the prospects of investing in a Japanese integrated resort remain elusive by next year, GENS may consider capital management initiatives, which we believe could entail higher dividends or share buybacks.
Valuation:
- To account for improved cashflow generation on the back of a reduction in credit terms for its receivables (30 days down from 90 days previously), we raise our DCF-based TP to S$0.79 from S$0.65.
- Our valuation does not include the proposed Jeju integrated resort, given limited details on the project.
Key Risks to Our View:
- Turnaround of VIP business and award of casino license in Japan. While we maintain our cautious stance, GENS’ share price could re-rate on the back of a sustained recovery in the VIP market.
- Further upside could also arise if Japan legalises casinos and GENS is awarded a license to build an integrated resort. The casino bill has yet to be passed by the Japanese government.
- In addition, there is considerable uncertainty over the location of the integrated resort, tax structure, timing, and whether the casino will allow local Japanese patrons.
Mervin SONG CFA
DBS Vickers
|
http://www.dbsvickers.com/
2016-05-16
DBS Vickers
SGX Stock
Analyst Report
0.79
Up
0.65