Genting Singapore (GENS SP) - Maybank Kim Eng 2017-02-23: Stunned by higher-than-expected dividends, U/G BUY

GENTING SINGAPORE PLC G13.SI

Genting Singapore (GENS SP) - Stunned by higher-than-expected dividends; U/G BUY

FY16 earnings were within our expectation but dividends outperformed.
FY16 DPS implies > 100% core DPR, a first for a Genting company. While the operating environment remains challenging, we concede that investors will be more excited over the higher-than-expected dividends.

Therefore, we lift our target FY17 EV/EBITDA to 12x (on par with longterm 12M forward EV/EBITDA mean) from 8x (-1.5 SD to LT 12M forward EV/EBITDA mean) and lift our TP to SGD1.10 from SGD0.80.

4Q16 core net profit of SGD104.2m (+67% YoY) brought FY16 core net profit to SGD285.1m (-23% YoY), representing 105% of our forecast. FY16 EBITDA of SGD779.0m (-4% YoY) was in line with our expectation at 102% of forecast.
The final DPS of 1.5 cents brought FY16 DPS to 3.0 cents (+50% YoY), which outperformed our expectation by 1.0 cent or 50%.
The FY16 DPS implies 127% core DPR, a first for a Genting company if our memory serves us correctly.

Going forward, GENS expects VIP volumes to be stable and to maintain trade receivables at ~SGD200m but concedes that the mass market will be negatively impacted by the weak MYR.
As annualised 4Q16 EBITDA is only 6% higher than our FY17 EBITDA estimate, we leave our earnings estimates largely unchanged. That said, GENS is confident of maintaining DPS at 3.0 cents pa. Therefore, we lift our FY17/FY18 DPS estimate from 2.5 cents/2.7 cents to 3.0 cents/3.0 cents.

Although DPS of 3.0 cents pa imply high DPRs of 80-90% going forward, GENS is confident it can gear up to bid for a Japanese integrated resort (IR) licence if the Implementation Bill is passed in 4Q17. It is targeting IR licences in either Osaka or Yokohama.
GENS expects each IR to cost USD7b-USD12b, of which land will cost USD2b-USD3b. As its balance sheet position is net cash, GENS believes it has an advantage over its heavily geared competitors.

VIP hold rate - If VIP hold rate is above theoretical levels, it can positively influence earnings.
Rise in local mass market base. Singaporeans account for the majority of mass market gamblers and are more resilient.
Tilt towards mass market away from VIP will expand margins due to less commissions and rebates.

VIP hold rate – If VIP hold rate is below theoretical levels, it can negatively influence earnings.
Bad debts – Chinese account for the majority of VIPs but gambling debts are not enforceable in China.
Regional expansion – new jurisdictions often require high capex commitments without guaranteeing returns.

Yin Shao Yang Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-02-23

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