Genting Singapore (GENS SP) - Maybank Kim Eng 2017-11-07: All Systems Go!

Genting Singapore (GENS SP) - Maybank Kim Eng 2017-11-07: All Systems Go! GENTING SINGAPORE PLC G13.SI

Genting Singapore (GENS SP) - All Systems Go!

Maintain BUY with TP raised 5% to SGD1.42 

  • Higher-than-expected VIP volume drove Genting Singapore's 3Q17 earnings to outperform our expectation again. Note that 3Q17 VIP volume and 3Q17 mass market gross gaming revenue (GGR) both grew YoY, snapping many quarters of YoY contraction. This is a positive development as 3Q16-2Q17 earnings growth YoY had been largely driven by cost savings. 
  • Accordingly, we lift FY17-FY19F EBITDA by 4-5%. Ascribing an unchanged FY18F EV/EBITDA of 12x (eight-year mean), we lift our Target Price from SGD1.35 to SGD1.42.

Outperformed our expectation again 

  • Genting Singapore's 3Q17 core net profit of SGD187.8m (+77% YoY, +18% QoQ) brought 9M17 core net profit to SGD499.5m (+176% YoY), which was above our expectation at 80% of our full-year estimate. 
  • 9M17 revenue of SGD1.8b (+9% YoY) was also a tad ahead of our expectation at 77% of our full-year estimate. 
  • On closer inspection, the outperformance was due to estimated 9M17 VIP volume of SGD20.4b (-8% YoY) coming in at 82% of our full-year estimate.

VIP volume & mass market GGR resumed YoY growth 

  • In fact, estimated 3Q17 VIP volume of ~SGD7.4b was up ~25% YoY. This is the first time quarterly VIP volume grew YoY since 2Q14. Yet, 3Q17 trade receivables balance of SGD137.7m and 3Q17 trade receivables impairments of SGD14.0m were record lows.
  •  Estimated 3Q17 mass market GGR of ~SGD365m was also up ~5% YoY. This is the first time quarterly mass market GGR grew YoY since 1Q16.
  • GENS attributed this to its new premium mass and slot gaming areas.

FY17-19F EBITDA revised up by 4-5% 

  • While naysayers may say that the higher-than-expected 3Q17 VIP volume was due to VIP volume share gains (3Q17: 37%, 2Q17: 34%), note that 3Q17 industry VIP volume did grow ~30% YoY. This was driven by the recovering Macau VIP market ‘spilling over’ to the Singapore one.
  • Going forward, GENS intends to extend a little more credit to VIPs to grow VIP volumes. 
  • We lift our FY17/FY18/FY19 VIP volume share forecast from 34%/34%/34% to 36%/37%/37%. The net impact is to lift our FY17/FY18/FY19F EBITDA by 4%/5%/5%.

Other updates 

  • GENS may reinvest SGD1b over the next three years to rejuvenate Resorts World Sentosa.
  • The second bill required to liberalise the Japanese casino industry, known as the Implementation Bill, is unlikely to be passed in 4Q17.
  • The Implementation Bill may be tabled in the summer of 2018 and passed in the autumn of 2018.

Results analysis

  • 3Q17 EBITDA increased 37% YoY, although 3Q17 VIP win rate of 3.1% was 20bps lower YoY as: 
    • 3Q17 VIP volume of ~SGD7.4b was ~25% higher YoY; 
    • 3Q17 direct VIP rebate rate of 1.4% was ~35bps lower YoY; 
    • 3Q17 trade receivables impairment of SGD14.0m was down 72% YoY; 
    • 3Q17 mass market GGR of ~SGD365m was ~5% higher YoY.
  • 3Q17 EBITDA rose 9% QoQ as 3Q17 VIP volume of ~SGD7.4b was ~20% higher QoQ and 3Q17 VIP win rate of 3.1% was ~10bps higher QoQ.

Yin Shao Yang Maybank Kim Eng | 2017-11-07
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 1.42 Up 1.350