Genting Singapore - DBS Research 2016-07-26: Potential weakness in 2Q16

Genting Singapore - DBS Research 2016-07-26: Potential weakness in 2Q16 GENTING SINGAPORE PLC G13.SI 

Genting Singapore - Potential weakness in 2Q16

  • Marina Bay Sands (MBS)’s 2Q16 VIP rolling chip and mass drop fell 29% and 11% respectively.
  • Points to potentially weak 2Q16 earnings for Genting Singapore (GENS).
  • Maintain HOLD, TP S$0.79.

What’s new

MBS reports weakness in both VIP and mass businesses

  • MBS’ 2Q16 rolling chip volume fell 29% y-o-y to US$6.7bn, partially offset by an improved win rate of 3.5%, which is above the theoretical win rate of 2.85%. Thus, VIP gross gaming revenue (GGR) declined 16% y-o-y, in line with overall 2Q16 VIP Macau GGR which dropped 16%.
  • The mass business unexpectedly underperformed given the recent improvement in tourist arrivals into Singapore with 2Q16 mass drop declining 11% y-o-y to US$936m. Nevertheless, slots handle did see an improvement, increasing 6% y-o-y to US$3.2bn.
  • Due to the better luck factor in the VIP segment, adjusted EBITDA came in at US$357m, down 2% y-o-y or -1% on a constant currency basis. However, hold-normalised adjusted EBITDA fell 11% to US$322.6m or -10% on a constant currency basis.
  • Bad debts remained above the US$30m level for the third consecutive quarter at US$31m, with bad debts as percentage of account receivables jumping to 4.2% in 2Q16 up from 3.9% in 1Q16 and 2% in 2Q15.

GENS likely to report another set of soft results

  • With MBS reporting a weak set of results, we expect GENS to also exhibit declines in both its VIP and mass businesses.
  • However, for GENS’ VIP segment, there may be a silver lining and the division’s decline in rolling chip volumes may be narrower as GENS has already hit the US$6-6.5bn level over the last two quarters.
  • MBS’ bad debts as percentage of receivables increased over the quarter. We understand that GENS is still working through its receivables, hence GENS’ 2Q16 bad debts is likely to remain elevated.
  • MBS indicated that the VIP business should remain challenging going forward. While GENS’ is likely to provide a similar commentary, there is potential for GENS to start reporting sequential improvements in VIP volumes in 3Q16 and 4Q16, as GENS has been deliberately restricting credit to its VIP customers over the past year to counter potential bad debts. GENS may now have a better grasp over the type of customers it wants to do business with, and GENS’ could potentially be more open to extending credit on a selective basis.

Maintain HOLD, TP S$0.79

  • With GENS’ share price close to our TP of S$0.79, we maintain our HOLD recommendation.
  • GENS will release its upcoming 2Q16 results on Thursday, 4 August 2016.

Mervin SONG CFA DBS Vickers | http://www.dbsvickers.com/ 2016-07-26
DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 0.79 Same 0.79