Genting Singapore - CIMB Research 2016-07-26: Weak MBS results could mean mass market share gains at RWS

Genting Singapore - CIMB Research 2016-07-26: Weak MBS results could mean mass market share gains at RWS GENTING SINGAPORE PLC G13.SI 

Genting Singapore - Weak MBS results could mean mass market share gains at RWS 

  • MBS’s 2Q16 adjusted EBITDA of US$357m (+30% qoq, -2% yoy) was lifted by a high rolling win rate. Rolling chip volume fell an unexpected 30% qoq and 29% yoy. 
  • Mass GGR fell 7% qoq and 5% yoy on lower table game revenue (-11% qoq, -9% yoy), although slots did better (-3% qoq, +6% yoy). This was the worst in four years. 
  • While bad MBS results could have a negative impact on GENS’s share price, we would buy into weakness betting on mass market share gains at RWS in 2Q. 

MBS reports lower adjusted EBITDA due to table games 

  • Marina Bay Sands (MBS) reported 2Q16 adjusted EBITDA of US$357m (+30% qoq, - 2% yoy, -1% yoy in constant currency), which was largely lifted by a high rolling win rate of 3.5%. 
  • On a hold-normalised basis, adjusted EBITDA was down 16% qoq and 11% yoy at US$323m (-10% yoy on constant-currency basis). The poorer performance was mainly driven by weakness in both VIP and mass table games. 

Unexpected weakness in VIP segment 

  • On the headline, VIP GGR of US$236m seemed like a decent performance (+72% qoq, -11% yoy). However, this was lifted by a higher rolling win rate of 3.5% (1Q16: 1.4%, 2Q15: 2.8%). Rolling chip volume fell 30% qoq and 29% yoy to US$6,740m, a record low since the property’s opening. 
  • Management explained this was due to softness in the high-end VIP segment (morethan- US$5m drop), which appears to be a global slowdown as the same trends were seen in Macau and Las Vegas. We think Resorts World Sentosa (RWS) is unlikely to be spared, though the fall could be of a smaller magnitude, coming off a lower base. 

Mass GGR the worst in four years at MBS 

  • MBS typically recorded mass win-per-day of US$4.7m-4.8m but only achieved US$4.5m in 2Q16. Not adjusting for currency effects, mass GGR of US$408m (-7% qoq, -5% yoy) was its worst performance in four years. This was dragged by lower non-rolling GGR of US$262m (-11% qoq, -9% yoy) while slot GGR held relatively steady (+1% qoq, +4% yoy). Management said that the weakness in MBS’s mass segment was likely unique to its property instead of a global trend. 

We think RWS could continue to win mass market share 

  • We think RWS’s shift in strategy from VIP to mass and new efforts to drive premium mass visitation could lead to better gaming volumes and further mass GGR market share gains at RWS (2Q16F: 43%, 1Q16: 41%). Our recent channel checks at the two properties also suggest that RWS has attracted a bigger crowd than MBS. 
  • We expect GENS to post 2Q16 core net profit of S$66m (flat qoq), with higher mass GGR to offset softer VIP GGR. Bad debt charges likely remained high in 2Q. 

Maintain Add 

  • Maintain Add, with an unchanged SOP target price of S$0.89. 
  • We believe 2Q remained unexciting but 2H16 should improve with the alleviation of bad debt charges. 
  • We see potential earnings upside from Resorts World Jeju coming through as early as 2017. 
  • A key downside risk is prolonged deterioration in VIP gaming volumes.

Jessalynn CHEN CIMB Securities | http://research.itradecimb.com/ 2016-07-26
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 0.89 Same 0.89