Genting Singapore - CIMB Research 2017-05-14: 1Q17 Results Soar On Cost Efficiencies

Genting Singapore - CIMB Research 2017-05-14: 1Q17 Results Soar On Cost Efficiencies GENTING SINGAPORE PLC G13.SI

Genting Singapore - 1Q17 Results Soar On Cost Efficiencies

  • Adjusted 1Q17 EBITDA of S$283.2m exceeded our expectations on lower operating expenses. Margin trended up to 48.3%, the highest in the past 11 quarters.
  • 3M core net profit formed 40%/25% of our/consensus FY17F estimates.
  • GENS intends to redeem its S$2.3bn perpetuals in 4Q17, saving it c.S$118m worth of expenses and another uplift to FY18-19F EPS.
  • We lift FY17F-19F adjusted EBITDA by 12-14% and EPS by 32-49%.
  • Maintain Add with a higher TP of S$1.24 (from S$1.11).

Lower trade receivable provisions the quarter’s hero 

  • 1Q17 adjusted EBITDA (31% of FY17F estimate of S$917.6M) was driven largely by a significantly lower trade receivables provision of S$15m (-83.8% yoy/-61.5% qoq) vs. our S$50m/quarter forecast and lower than 1Q16/4Q16’s provisions of S$92.4m/S$38.9m.
  • GENS has guided that it is comfortable with the current level in upcoming quarters as tight credit policies will be unchanged, implying c.S$60m of provisions for the year.

Topline stabilises qoq on higher VIP win rate 

  • 1Q17 gaming revenue of S$434.4m (-3.5% yoy/+ 9.0% qoq) was upheld by a higher win rate of 2.95% (4Q16: 2.87%) and stabilised qoq market share trends. 
  • Casino gross revenue market share was 38%, rolling wins market share was at 39%, whilst mass wins market share was at 38%. 
  • Non-gaming revenue of S$151.4m (-3.6% yoy/ -4.5% qoq) weakened on lower attractions visitation, but GENS expects a trend up in latter quarters.

Japan bidding season; potentially mid-2018 onwards 

  • The Problem Gambling Bill is being tabled at the current DIET session, and if successful the execution bill will be tabled in Sept/Oct 17 at an upcoming Extraordinary DIET.
  • Subject to the latter being passed by end-17, GENS believes the licence bidding could occur mid-18 onwards. This leaves GENS plenty of time to optimise its capital structure, in our view. Previously quoted industry investment costs were US$10bn-12bn.

Redevelopment of RWS; next pet project 

  • In the near-term GENS will focus on the redevelopment of Resorts World Sentosa (RWS) given it is due for a refresh having been in operations for seven years. The redevelopment will need regulatory approval, with no capex figures tentatively revealed.
  • Our sense is more news will emerge in end-17. Thus far, GENS has focused on rebranding itself to broaden its appeal as a premier lifestyle-based integrated resort.

Redeeming perpetuals in 4Q17 via cash, DPS of 3Scts intact 

  • We are positive on GENS’ perpetuals redemption (Oct/Sep: S$1.8bn/S$0.5bn) as it relieves the PnL from S$118m costs p.a. Redemption will be via cash (1Q17: S$5.6bn), with no replacement refinancing. 
  • We forecast perp. costs to fall to c.S$88.6m in FY17F, and zero in FY18-19F; and FY17-19F net cash to fall to S$2.4bn/S$2.8bn/S$3.2bn. Any gear-up will be in FY18 for Japan bids or RWS redevelopment, in our view. 
  • GENS is committed to FY17F 3Scts DPS despite the fall in cash.

Maintain Add; higher TP of S$1.24; FY17-19F EPS lifted by 32-49% 

  • We lift FY17-19F EBITDA by 12-14% as we tweak our operating costs lower. 
  • FY17-19F EPS rises by 32-49% with the removal of perp. costs by 4Q17 and the upgrades in adj. EBITDA. 
  • We upgrade GENS to 12x FY18F EV/EBITDA (slightly above 6-year mean of 11.3x) from 9x, as EBITDA margins have continued to stabilise and trend up with the fall in provisions. 
  • Risks are a fall in gaming revenues, higher trade receivable provisions and failure to secure any Japan opportunities.

Cezzane SEE CIMB Research | LIM Siew Khee CIMB Research | http://research.itradecimb.com/ 2017-05-14
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 1.24 Up 1.110