Genting Singapore - CIMB Research 2016-08-05: Look past the headline miss

Genting Singapore - CIMB Research 2016-08-05: Look past the headline miss GENTING SINGAPORE PLC G13.SI 

Genting Singapore - Look past the headline miss

  • 2Q16 core net profit of S$6.1m a big miss at 2% of our/consensus FY16F, mainly on poor luck factor. Gaming volumes were soft but market share largely unchanged.
  • 1H16 core net profit below expectations at 24% of our full-year estimates.
  • We estimate 2Q hold-normalised adjusted EBITDA would have come in at S$185m vs. reported S$116m, and core net profit at S$75m (25% of our FY16F).
  • The integrated development at Resorts World Jeju (RWJ) remains on track for soft opening in 4Q17, while first phase of the residential units have been 50% sold.
  • Maintain Add, with an unchanged SOP target price of S$0.89.

Headline miss, but in line on a hold-normalised basis

  • 2Q16 core net profit of S$6.1m appeared to be a headline miss, but this was mainly due to a poor rolling win rate of 1.7% vs. theoretical average of 2.8%. 
  • On a hold-normalised basis, we estimate that adjusted EBITDA would have been S$185m and net profit at S$75m, largely in line at 25% of our full-year estimate. 
  • Underlying gaming volumes, while not stellar, were decent in a slow market. RWS’s market share of rolling chip volume rose from 41% to 43% qoq; share of mass drop and slot handle were at 42%.

Lower bad debt charges and cost cuts to continue into 2H16

  • Bad debt charges fell 42% qoq to S$53.6m, below management’s guidance. This was the result of significant success in collections in 2Q, and guidance was for bad debt charges to remain in the S$50m-60m/quarter range. 
  • RWS also embarked on a cost efficiency initiative, which management guides will yield cost savings of S$30m p.a. from lower payroll expenses after right-sizing its operations. This resulted in one-off costs in 2Q and likely in 3Q, but the benefits will flow through starting FY17.

VIP volumes to remain flat, but mass has room for growth

  • Rolling chip volume declined in 2Q, though not as quickly as rival MBS, resulting in 2% pts market share gain. Management remains cautious on the VIP segment and expects little growth. Rather, its efforts continue to be focused on driving mass and premium mass visitation, with Indonesia and Thailand identified as potential growth markets. 
  • To tap the Chinese market, it is working with Singapore Tourism Board to target free independent travellers from affluent cities and formed a strategic partnership with Alipay.

Resorts World Jeju progressing well

  • RWJ launched part of phase I of its residential development in Mar, and has sold 151 units so far (50% of units launched), taken up by a mix of Chinese and Koreans. The second launch of phase I is expected to take place in Sep-Oct. 
  • No profits have been recognised so far – profit can only be recognised upon completion. The rest of the resort remains on track for soft opening in Oct 2017. 
  • We previously estimated RWJ’s earnings contributions to GENS at S$145m p.a. when fully completed, excluding residential sales.

Maintain Add

  • Our Add call is underpinned by potential volume growth in the higher-margin mass gaming segment, easing bad debt charges, cost savings from the right-sizing exercise and upside from RWJ starting 2017. 
  • We cut our FY16-19 EPS on lower gaming volumes and rolling win rate, partially offset by lower expenses. 
  • Our SOP target price stays at S$0.89 as we lower our capex assumptions in line with management’s guidance. 
  • Downside risk could stem from further accelerated decline in rolling chip volume.

Jessalynn CHEN CIMB Securities | http://research.itradecimb.com/ 2016-08-05
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 0.89 Same 0.89