Genting Singapore - Maybank Kim Eng 2016-05-16: Decent 1Q16 but was expected

Genting Singapore (GENS SP) - Maybank Kim Eng 2016-05-16: Decent 1Q16 but was expected  GENTING SINGAPORE PLC G13.SI 

Genting Singapore - Decent 1Q16 but was expected

Maintain HOLD and SGD0.78 TP

  • 1Q16 core net profit reached only 17% of our full-year estimate but we expect doubtful debts to moderate going forward, boosting core net profit in the process. 
  • More importantly, 1Q16 revenue was within our expectations. 
  • Gaming operations also appear to be stabilising, not just at GENS but at the industry level as well. That said, valuations remain rather rich at 25x 2016 PER. 
  • Maintain HOLD and SGD0.78 TP on 8x 2016 EV/EBITDA (-2 SD to its long-term 12M forward EV/EBITDA mean).

1Q16 still within our expectations

  • GENS generated 1Q16 net profit of SGD10.8m. 
  • Ex-exceptional items, 1Q16 core net profit of SGD65.7m (-1% YoY, +5% QoQ) accounted for only 17% of our full year estimate. That said, 1Q16 revenue of SGD608m (-5% YoY, +11% QoQ) was within our expectations at 25% of our full year estimate. 
  • The earnings shortfall was due to still high 1Q16 doubtful debts of SGD92.4m (+21% YoY, +104% QoQ) but we expect it to moderate from 3Q16 onwards (full year estimate: SGD228m) on tighter credit policies.

Operations appear to be stabilising

  • We note a couple of positives: - 
    1. we estimate VIP volume grew 4% QoQ to SGD9.2b (share of VIP volume grew 2 ppts QoQ to 40%); and 
    2. we estimate mass market gross gaming revenue (GGR) grew 9% QoQ (share of mass market GGR grew 2 ppts QoQ to 41%). 
  • Reaffirming our view, we estimate that industry (Resorts World Sentosa & Marina Bay Sands) VIP volume was flattish QoQ at SGD23b and we estimate industry mass market GGR was actually up ~5% QoQ to SGD1b.

Not revising estimates as stabilisation expected

  • We see no reason to revise our earnings forecasts. 
  • Although this may come at the expense of VIP volume, we expect doubtful debts to moderate from 3Q16 onwards on tighter credit policies (from 90 days to 30 days repayment terms). 
  • We also understand that GENS has been organising more lucky draws and tournaments to maintain its mass market GGR.

Other updates

  • There is still no clarity of Japan liberalising its casino industry. GENS does not want to venture into countries with political and regulatory risk.
  • GENS has no plans to REIT its assets at Resorts World Sentosa (RWS) despite plans by Marina Bay Sands to do so.
  • 50%-owned Resorts World Jeju (RWJ) is progressing well with stores expected to open in 4Q17. Its capex budget has been revised from USD2b to USD2.2b. That said, RWJ expects to raise USD1b from sale of residential properties.

Yin Shao Yang Maybank Kim Eng | 2016-05-16
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 0.78 Same 0.78