Genting Singapore - RHB Invest 2017-11-07: Riding On Luck And Co-Operative Debtors

Genting Singapore - RHB Invest 2017-11-07: Riding On Luck And Co-Operative Debtors GENTING SINGAPORE PLC G13.SI

Genting Singapore - Riding On Luck And Co-Operative Debtors

  • 3Q17 results trumped expectations as Genting Singapore’s average VIP holds registered 3.1%, while the successful recovery of some of its bad debts helped to lower overall opex. 
  • Following full redemption of its SGD2.3bn perpetual bonds, the group has re-tapped the bond market by issuing samurai bonds of JPY20bn. This affirms management’s intention to expand its presence in Japan by potentially putting in bids in more than one city. 
  • Maintain NEUTRAL, with new DCF-based TP of SGD1.21 (from SGD1.19, 2% downside), post earnings forecast changes.

3Q17 results review. 

  • Genting Singapore’s 9M17 core earnings of SGD550.3m came above both our/consensus expectations at 88.9% and 91.1% of full-year estimates respectively. This was driven by the stellar 3Q17 results, with core earnings at SGD203.0m, due to better-than-expected VIP luck factor (overall holds closed at 3.1% vs theoretical level of 2.8%). This was further boosted by some lumpy write-backs of its receivables after successful recovery during the quarter. 
  • Management, however, did not reveal the exact magnitude involved. 

Redemption of perpetual bonds. 

  • Management fully redeemed its perpetual bonds of SGD2.3bn in Oct 2017. Pursuant to that, it has re-tapped the bond market by issuing samurai bonds of JPY20bn in three tranches at JPY offer- side swaps plus 45-85bps. 
  • This solidifies management’s intention to expand its presence into Japan and comes within our previous anticipation, as we expect management to build up its war chest in preparation for the official bidding.

To reinvest in RWS. 

  • The group is in discussion with the Government to finalise a strategic roadmap charting its reinvestment into RWS. We believe this could help rejuvenate visitation interest to the seven-year-old integrated resort in the long run. 
  • During the briefing, management said that total capex allocation could hit as much as SGD1bn as the group seeks to rebrand RWS as a lifestyle cum family-friendly destination. 
  • We expect more financial details to be shared upon conclusion of the negotiation by end-2017.

All out on Japan. 

  • Management expects the integrated resorts implementation bill to be passed in 2H18. We believe the group is currently exploring potential JVs with local institutions, as well as evaluating several cities to enhance its chances of winning.

Forecasts and risks. 

  • We upgrade FY17F-19F EPS by 9-15% as we expect its VIP segment to gather pace – with management indicating that the group is likely to be more aggressive on credit offerings for the rest of the year. 
  • We believe this is intended to capitalise on the current bullish sentiment, as observed in Macau’s gaming volume, which hit HKD21.2bn in Oct 2017 to mark its highest level since Jan 2016. 
  • Key risks include the volatility in win rates and potential weakness in tourist arrivals to Singapore due to the strengthening of the SGD against regional currencies.

Maintain NEUTRAL with new SGD1.21 DCF-derived TP, following our earnings revision and to capture its latest net cash position. 

  • While we are glad to see continued improvements under its overall gaming performance, we believe the current valuation is fair and we caution that the pricing war in Japan to bid for casino licences is imminent.

Singapore Research Team RHB Invest | http://www.rhbinvest.com.sg/ 2017-11-07
RHB Invest SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 1.21 Up 1.190