Genting Singapore (GENS SP) - Maybank Kim Eng 2018-01-17: Keep Calm And Carry On Recovering

GENTING SINGAPORE PLC G13.SI

Genting Singapore (GENS SP) - Keep Calm And Carry On Recovering

While Genting Singapore (GENS)’ earnings recovery was largely driven by cost rationalisation in 2017, we expect it to be largely driven by VIP market recovery in 2018 instead.
We lift our FY17-19 earnings estimates by +5% p.a. and Target Price by +3% to SGD1.46 on an unchanged 12x FY18 EV/EBITDA (post-Jun 2009 12M forward EV/EBITDA mean).

Coupled with another 4.5cents of DPS by end-FY18, we forecast total returns of 13%. There could be more upside to earnings and Target Price from market share gains, thanks to the recovering MYR.

As we raised our 2017 and 2018 Singapore VIP volume growth forecast to +10% and +5% respectively (+0% and +0% previously), we lift our FY17/ FY18/FY19 earnings by +5%/+5%/+5%. Assuming normal VIP win rate of 2.85%, we expect Genting Singapore (GENS) to report 4Q17 EBITDA of SGD295m (+27% y-o-y, - 8% q-o-q).
Although we expect 4Q17 RWS VIP volume to be higher q-o-q, we gather that 4Q17 EBITDA may be a tad lower q-o-q as 3Q17 RWS VIP win rate was above the theoretical range of 2.7-3.0%, at 3.1%.

Our research indicates a strong correlation between VIP volume/mass market GGR share and the MYR/SGD exchange rate. We understand that this is because RWS has more Malaysian gamblers than Marina Bay Sands due to its Genting heritage. As the MYR/SGD has been recovering, we can expect RWS to regain market share in the near future.
For now, we continue to assume that RWS will command 37% VIP volume share and 39% mass market GGR share in FY18 and FY19.

Genting Singapore has regularly expressed interest in bidding for a Japanese casino license. We gather that the Problem Gambling Bill and Implementation Bill may be passed in the Diet this year to liberalise the Japanese casino industry and Request For Proposals will be called for soon after.
We also do not discount the possibility that RWS may sell its stakes in Universal Studios Singapore and its hotels this year. Recall that the ban on RWS and MBS from selling stakes in their non-gaming assets was lifted in Apr 2017.

Of late, there has been a lot of speculation in the Singaporean press whether the GST rate will be hiked from 7% to 9% in the upcoming Singapore Budget 2018 that will be tabled on 19 Feb 2018.
Even if the GST rate is hiked from 7% to 9%, all else being equal, we estimate that our earnings estimates will be trimmed by merely 4% p.a., assuming that RWS absorbs the additional tax.
In fact, we estimate that this negative impact can be cancelled out entirely by RWS regaining a mere 1ppt of mass market GGR share. Therefore, we advise investors not to be overly concerned.

Yin Shao Yang Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2018-01-17

Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 1.46 Up 1.420