Genting Singapore - CIMB Research 2017-08-03: 2Q17 Buoyed By Win Rate And Mass Market

Genting Singapore - CIMB Research 2017-08-03: 2Q17 Buoyed By Win Rate And Mass Market GENTING SINGAPORE PLC G13.SI

Genting Singapore - 2Q17 Buoyed By Win Rate And Mass Market

  • Genting Singapore's 2Q17 adjusted EBITDA of S$292.7m beat our and Bloomberg consensus forecasts on better-than-expected gaming revenues and continued cost control efforts.
  • Gaming revenues were buoyed by sustained win rates and a resilient mass market in a seasonally weaker quarter.
  • Interim DPS of 1.5 Scts was announced in 2Q17.
  • We lift our FY17F-19F EBITDA by 11.0-9.7%. Maintain Add with a higher TP of S$1.35 (from S$1.24), still based on 12x FY18F EV/EBITDA (close to its 6-year average mean of 11.5x).

Sustained revenues and tight cost control led the way 

  • GENS' 2Q17 adjusted EBITDA (+24.0% yoy, +1.6% qoq) brought 1H17 adjusted EBITDA to S$576m, accounting for 56% of our S$1.03bn full-year forecast. This was a significant surprise to us, largely because 2Q is typically a weak quarter. 
  • The beat was led by better-than-expected gaming revenues of S$442.m in 2Q17 (+33% yoy/+2% qoq) and tight cost control (especially on trade receivable provisions) that ensured margins were kept intact.
  • Adjusted EBITDA margin of 49.1% in 2Q17 was the highest in the past 12 quarters.

Mass sees better market share; VIP sustained by win rate 

  • GENS mass market share rose to 40% in 2Q17 vs. 38% in 1Q17. Despite a slight dip in rolling chip volume market share to 34% (1Q17: 35%), overall VIP gross gaming revenue (GGR) was upheld by better VIP win rate of 3.00% (1Q17: 2.95%; 2Q16: 1.7%) and lower discounts and rebates, in our view. 
  • We see the mass market share gain as a testament to management's pursuit of the premium mass segment and think the VIP segment could see sustained GGR as management highlighted it aims to enhance this business.

Cost control intact on lower trade receivable provisions 

  • 2Q17 cost of sales of S$321.3m (-17% yoy; -1% qoq) was lower than our estimate of S$330m-340m as management continued its tight rein on costs. 
  • 2Q17 trade receivable provisions of S$14.7m (-73% yoy; -2% qoq) were in line with our expectation of S$15m per quarter. 
  • Management comforted the street that whilst it aims to enhance the VIP business, it remains cognisant of the trade receivable provisions and would like to keep provisions at this level.

Interim DPS of 1.5 Scts; FY17F DPS of 3 Scts intact 

  • GENS announced a DPS of 1.5 Scts for 2Q17, which was a slight surprise as it announced its interim DPS in 3Q16. 
  • Management guided that it will likely uphold this trend of announcing dividends every half-year. Hence, the final dividend would be in 4Q17.

Lifting FY17-19 adjusted EBITDA by 9.7-11.0% 

  • As we have been too conservative in our VIP win rate assumptions for FY17F-19F, we now increase our forecasts to 2.9% vs. 2.75% previously. 
  • We have also toned down our operational cost estimates as we were previously too aggressive in forecasting other costs. 
  • Our changes result in FY17F/18F/19F EBITDA increasing 11.0%/9.9%/9.7%, lifting our EPS by 18.0%/15.9%/15.6%.

Maintain Add, higher TP of S$1.35 

  • We maintain our Add rating. The upgrade to our adjusted EBITDA forecasts lifts our TP to S$1.35, still based on an unchanged FY18F EV/EBITDA of 12x (slightly above its 6- year mean of 11.3x). 
  • Potential re-rating catalysts are higher-than-expected margins and better gaming revenues. 
  • Downside risks to our call 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 | 2017-08-03
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 1.35 Up 1.240