Genting Singapore (GENS SP) - Maybank Kim Eng 2017-05-04: 1Q17 Preview ~ Legs To Run Some More?

Genting Singapore (GENS SP) - Maybank Kim Eng 2017-05-04: 1Q17 Preview: Legs To Run Some More? GENTING SINGAPORE PLC G13.SI

Genting Singapore (GENS SP) - 1Q17 Preview: Legs To Run Some More?

Lift TP by 14% to SGD1.25; maintain BUY 

  • GENS will report 1Q17 results on 12 May 2017. While it may have ceded mass market share in 1Q17, we believe it will regain this in 2Q17.
  • Factoring in higher VIP volume and lower VIP rebate rates, we lift our EBITDA by 14-16% and our TP by 14% to SGD1.25. This remains based on 12x FY17E EV/EBITDA, its eight-year mean. 
  • We now estimate 1Q17E EBITDA of SGD250m (4Q16: SGD233.7m, 1Q16: SGD192.5m). 
  • Maintain BUY with catalysts expected from a potential Japanese casino license. 
  • Risks to our call include below theoretical VIP win rates and more bad debts.

1Q17 Macau VIP GGR points to more VIP volume 

  • Our research indicates a strong correlation between Macau VIP gross gaming revenue (GGR) and Singapore VIP volume. While Macau is the undisputed preferred destination of Chinese VIPs, we understand that Singapore comes in second. 
  • 1Q17 Macau VIP GGR grew 6% QoQ, thanks to higher property and commodity prices. And as 1Q17 Marina Bay Sands’ (MBS) VIP volume already grew 9% QoQ, we expect Resorts World Sentosa’s (RWS) VIP volume to have grown too.

EBITDA margins may improve on less VIP rebates 

  • We estimate that RWS cut its direct VIP rebate rates from 1.8% in 3Q16 to 1.5% in 4Q16. 
  • We gather that the retreat of major Australian and New Zealand casino operators following the arrest of 18 Crown Resorts employees in China on 14 Oct 2016 has reduced competition for Chinese VIPs. This has enabled RWS to cut its direct VIP rebate rates, which can be significant as we estimate that every 10bp drop in such rates can add 55bps to group EBITDA margins.

Mass market at inflection point? 

  • RWS has been ceding mass-market GGR share since 1Q13 due to MYR weakness against SGD, we believe. Our research indicates a strong correlation between the two. 
  • We understand that RWS has more Malaysian mass-market gamblers than MBS due to its Genting heritage. As the MYR/SGD weakened in 1Q17, we believe RWS lost mass-market GGR share then. But with the MYR/SGD recovering in 2Q17 thus far, we reckon it could regain its share in 2Q17.
  • We raise FY17/FY18/FY19 EBITDA estimates by 16%/14%/14% for: 
    1. VIP GGR. 
      • We now assume flat 2017 industry VIP volume vs -18% YoY previously. While we gather that 1Q17 industry VIP volume could have been lower YoY, we think 2Q17/ 3Q17 volumes will be higher YoY due to low 2Q16 and 3Q16 bases.
      • Assuming an unchanged RWS VIP volume share of 38% and VIP win rate of 2.85%, our revised 2017 VIP GGR for RWS is 22% higher than previously.
      • We maintain flat industry VIP volume assumptions for 2018 and 5% YoY growth for 2019.
    2. Direct VIP rebate rates as a percentage of VIP volume. 
      • We cut our 2017-2019 direct VIP rebate rates as a percentage of VIP volume from 1.8% to 1.5%, which was GENS’ 4Q16 average.
      • For now, we leave RWS mass-market GGR unchanged. We may lift our estimates if the MYR/SGD exchange-rate recovery is sustained.

Swing Factors


  • VIP win rate - If VIP win 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 win rate – If VIP win 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 | 2017-05-04
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 1.25 Up 1.100