Genting Singapore - RHB Invest 2016-08-05: Blame It On Bad Luck

Genting Singapore - RHB Invest 2016-08-05: Blame It On Bad Luck GENTING SINGAPORE PLC G13.SI 

Genting Singapore - Blame It On Bad Luck

  • A subpar 1.7% VIP luck factor marred a decent 2Q16 showing, as bad debt provisions improved 42% QoQ. 
  • Management did concede that 2H16’s outlook remains challenging, as Genting Singapore’s stringent credit offerings will cap its VIP growth while the influx of tourists from Tier-2 Chinese cities are unlikely to spur its mass market segment. 
  • Downgrade to NEUTRAL, with a SGD0.82 TP (from SGD0.91, 3% upside).

Lower impairments at last. 

  • We are glad to finally see improvements in the quality of Genting Singapore’s books, as 2Q16 impairments on receivables closed 42% lower QoQ at SGD53.6m. Management said that 2H16’s bad debt provisions will likely remain at current levels, as the group continues to be selective on credit offerings. 
  • On the downside, however, this will likely limit its VIP growth over the near term. Genting Singapore expects its rolling volume to remain steady at SGD60m per day for the rest of the year.

Mass market dependent on affluent tourists. 

  • Singapore’s tourist arrivals in the first four months of the year jumped 14.1% YoY to 5.5m. The number of visitors from China grew 53.2% YoY to 1m and they are now the island’s largest single source market for tourists. 
  • Management, however, pointed out that the impact to its mass market volume is minimal, as the increase was likely due to an influx of visitors from Tier-2 cities, which are typically less affluent.

Updates on South Korea. 

  • On its proposed Resorts World Jeju development, 50% of the Phase 1 launch – comprising some 300 residential units – has been sold. 
  • Phase 2’s launch will take place in September or October. We expect the soft opening of the casino to take place earliest by end-2017.

Forecasts and risks. 

  • We trim our FY16F-18F EPS by 7-14% to factor in the subpar VIP hold of 1.7% in 2Q16, and as we lower both our VIP and mass volume growth assumptions for FY17-18. This is to reflect the current cautious economic sentiment, which could impede gamblers’ appetites. 
  • Key risks include the volatility in VIP win rates and potential weakness in tourist arrivals to Singapore due to the strengthening of the SGD against regional currencies.

Downgrade to NEUTRAL (from Trading Buy). 

  • Following our earnings revision, we revise our DCF-based TP to SGD0.82. 
  • While we are positive on the improvements in its bad debt provision in 2Q16, which will sustain in 2H16 in our view, the dearth of re-rating catalysts on both the VIP and mass market volumes prompts us to take a more cautious approach ahead.

Singapore Research Team RHB Invest | 2016-08-05
RHB Invest SGX Stock Analyst Report NEUTRAL Downgrade TRADING BUY 0.82 Down 0.91