Genting Singapore - Maybank Kim Eng 2016-08-05: Hit by low VIP hold rate but fundamentals oddly weak

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GENTING SINGAPORE PLC G13.SI 

Genting Singapore (GENS SP) - Hit by low VIP hold rate but fundamentals oddly weak

Cut TP to SGD0.71 and downgrade to SELL

• 2Q16 and 1H16 results were below our expectations, even after adjusting for normalized VIP hold rate. VIP volume and mass market gross gaming revenue (GGR) were weak despite earlier indications to the contrary. 
• We slash earnings estimates by 38-61%. 
• Rolling forward our valuation base year to end-FY17E and ascribing an unchanged 8x EV/EBITDA (-2 SD to its long-term 12M forward EV/EBITDA mean), our new TP is SGD0.71. 
• With a weak outlook, we cut GENS to SELL from HOLD.

Results below our expectations

• 2Q16 core net profit of SGD6.1m (-91% YoY, -91% QoQ) brought 1H16 core net profit to SGD75.0m (-45% YoY), which accounted for only 19% of our full-year core net profit estimate. 
• At first glance, the earnings shortfall was primarily due to an abnormally low 2Q16 VIP hold rate of 1.7%. 
• While GENS said if 1H16 VIP hold rate were normal, 6M16 EBITDA would have been 21% higher at SGD377.4m, this would have still been below our expectation at 41% of our full-year EBITDA estimate.

Weak fundamentals odd, in our view

• We estimate 2Q16 VIP volume fell 40% YoY (our previous estimate: -10% to -20% YoY) and 2Q16 mass market GGR declined 10% YoY (our previous estimate: +0% YoY). Industry wide (Resorts World Sentosa & Marina Bay Sands), we estimate VIP volume fell 33% YoY and mass market GGR fell 5% YoY. 
• Curiously, the above was despite 2Q16 Macau VIP GGR (barometer for industry VIP volume) falling only 16% YoY and 2Q16 visitor arrivals to Singapore (barometer for industry mass market GGR) on pace to grow 10- 15% YoY. Note that 2Q16 industry VIP volume of SGD16.2b is a record low.

Slashing earnings estimates by 38-61%

• Revising for lower VIP volume and mass market GGR going forward, we cut our EBITDA estimates by 31%/23%/22% but slash our earnings estimates by a wider 61%/40%/38% due to negative operating leverage from relatively fixed depreciation of ~SGD300m p.a. and interest on perpetual securities of ~SGD120m p.a.. 
• Rolling forward our valuation base year to end-FY17E from end-FY16E and ascribing an unchanged 8x EV/EBITDA, our new TP is SGD0.71 (vs. SGD0.78)

Yin Shao Yang Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-08-05

Maybank Kim Eng SGX Stock Analyst Report SELL Downgrade HOLD 0.71 Down 0.78