Genting Singapore - CIMB Research 2017-11-06: 3Q17 Rolling With The Bigwigs

Genting Singapore - CIMB Research 2017-11-06: 3Q17: Rolling With The Bigwigs GENTING SINGAPORE PLC G13.SI

Genting Singapore - 3Q17: Rolling With The Bigwigs

  • Genting Singapore's 3Q17 adjusted EBITDA of S$320m beat our S$285.1m estimate and accounted for 28.0%/28.8% of our/consensus’ FY17F forecasts of S$1.14bn/S$1.11bn.
  • 3Q17 core net profit was S$187.8; 9M17 was 84%/81.8% of our/consensus’ estimate.
  • Gaming revenue grew on improved VIP and sustained mass GGRs; whilst tight cost control efforts led to adjusted EBITDA margin expansion to an all-time high of 50.8%.
  • Japan dreams are still intact; in the near term, push is still on for rebranding RWS.
  • Maintain Add but raise TP to S$1.45 on increased FY17-18F EPS; still based on 12x FY18F EV/EBITDA (close to its 6-year average mean of 11.5x).

EBITDA margin reaches new heights 

  • 3Q17 adjusted EBITDA rose 37.0%; driving 9M17 adjusted EBITDA up 65.3% to S$896.1m (vs. 3Q/9M16 of S$233.6m/S$542.2m) largely on growth in VIP GGR (3Q/9M17: +19%/+7.8%) and tight cost controls. 
  • 3Q17 adjusted EBITDA margin of 50.8% was the highest since 1Q12, and brought 9M17 adjusted EBITDA margin to 48.4%, closer to the levels seen in 2011/2012.

VIP back in growth mode; easing of credit policies for VIP growth 

  • 3Q17 gaming revenue grew 8.0% on higher VIP GGR. VIP volume grew following 12 consecutive quarters of yoy declines as RWS gained market share (37% vs. 2Q17:34%) in a growing Singapore VIP market; continual lower discounts and rebates (since 2Q17) enhanced VIP gaming profitability. 
  • The improved win rate of 3.02% for 9M17 (vs. 9M16: 2.63%) also lent strength. Guidance is to ease off credit policies moving forward to grow the VIP business.

Costs likely to still be closely monitored 

  • Despite loosening the reins on the VIP business, GENS highlighted that it will proceed cautiously. With trade receivables at a low of S$137.7m, this gives GENS much headroom in this endeavour, in our view. 
  • 3Q17 trade receivable provisions narrowed 5% qoq to S$14.0m, in line with guidance for provisions at the S$15m level and a testament to GENS’ tight grasp on its costs going forward.

Japan’s dreams intact 

  • Management guided that it is still keeping a very close lookout on the development of Japan's gaming market with expectations for casino bids possibly materialising only in the autumn of 2018; with Japan just emerging from snap elections in Oct 17.
  • Nonetheless, GENS reiterated it is prepared to bid anytime; recently it issued a JPY20bn (S$240m) yen-denominated bond.

Dividend likely unchanged; RWS’s redevelopment on the cards 

  • GENS guided it will unlikely raise its DPS beyond the 3Scts announced last year, as it believes it will need excess cash to fund the redevelopment of Resorts World Sentosa (RWS) which is due for a refurbishment, having been in operations for eight years.
  • Management guided that regulatory approvals will likely be obtained by end-FY18; preliminarily cost is at more than S$1bn.

Raising FY17-19F adjusted EBITDA by 6.7-8.0%

  • We raise our adjusted FY17-19F EBITDA by 6.7-8% as we increase our gaming revenue given better VIP growth in FY17-19F. 
  • We also lower our depreciation costs as we believe we were too aggressive on our previous forecasts. Our changes consequently lead to FY17-19F EPS increasing by 13-16.4%.

Maintain Add 

  • The upgrade to our adjusted EBITDA forecasts lifts our TP to S$1.45 (from 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 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/ 2017-11-06
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 1.45 Up 1.350