Genting Singapore - CIMB Research 2018-02-24: 4Q17 Capping Off A Good Year; Higher Surprise DPS

Genting Singapore - CIMB Research 2018-02-24: 4Q17 Capping Off A Good Year; Higher Surprise DPS GENTING SINGAPORE PLC G13.SI

Genting Singapore - 4Q17 Capping Off A Good Year; Higher Surprise DPS

  • Genting Singapore's FY17 adjusted EBITDA of S$1.15bn was in-line with our/consensus estimates at 95.0%/97% of our/consensus forecasts of S$1.22bn/S$1.18bn.
  • FY17 gaming revenues grew due to an improved win rate for VIP and sustained mass GGRs. Lower costs paved the way for higher adjusted EBITDA margin of 48.1%.
  • Final DPS of 2.0 Scts brought FY17 DPS to 3.5 Scts (above our estimate of 3.0 Scts) which was a welcome surprise.
  • Focus is on easing VIP credit policies in 2018 to spur VIP gaming revenue, and participating in any Japan opportunities. RWS redevelopment still in planning stage.
  • Maintain ADD with a higher Target Price of S$1.49 as we roll it over to FY19F, still based on 12x EV/EBITDA (close to 11.8x, +0.5 s.d. of its 5-year historical mean).

Adjusted EBITDA up 47.8% y-o-y 

  • Genting Singapore (GENS)'s FY17 adjusted EBITDA rose 47.8% y-o-y to S$1.15bn (vs. S$779.0m in FY16), largely on growth in gaming revenues (+9.9% y-o-y to S$1.75bn vs. FY16: S$1.59bn) and lower COGS (-14.4% y-o-y), with trade receivables impairment falling 79.5% to S$48.2m (vs. FY16: S$235.1m). 
  • FY17 adjusted EBITDA margin of 48.1% was a total switch from FY16’s margin of 35% and closer to the levels seen in 2011/2012.

VIP up on better luck factor; mass holding steady 

  • FY17 gaming revenue was up due to a lucky streak for the VIP business. FY17 VIP gross gaming revenue (GGR) grew by 6.5% on a win rate of 2.93% (vs. FY16 win rate of 2.7%). This mitigated the flattish mass GGR of S$1.49bn (vs. FY16: S$1.5bn). 
  • Overall, we estimate Resort World Sentosa to have 37%/39% market share of Singapore’s FY17 VIP and mass GGRs, respectively.

Higher FY17 DPS of 3.5 Scts 

  • GENS's 4Q17 DPS of 2 Scts was a surprise (vs. our forecast of 1.5 Scts) which brought full-year DPS to 3.5 Scts (vs. our FY17 DPS estimate of 3.0 Scts). 
  • Management mentioned that the extra dividend was to reward loyal shareholders and due to its strong cashflow performance in FY17. Management has made no commitment to repeat this in 2018.

Turning on the taps for the VIP business 

  • Singapore VIP volumes returned to growth mode after consecutive y-o-y declines in 2014-2016. We believe this could be due to the return of Chinese gamblers (high correlation (~c.90%) to Macau VIP baccarat GGR). Our Taiwan gaming analyst foresees Macau GGR headed for growth in FY18; hence there could be positive spillover effects on Singapore VIP volume. 
  • GENS was careful in 2017 with regards to its VIP credit, but aims to ease credit policies in 2018 which could lead to higher VIP market share.

Japan is still a key priority 

  • Management was positive on the Japan Gaming Bill being mentioned in the ongoing DIET (National Assembly) session and hopes it will be sanctioned in FY18, with bidding for prospective casinos possibly emerging in FY19. 
  • GENS issued a JPY20bn (S$240m) yen-denominated bond in FY17.

Maintain ADD 

  • We tweak our FY18-19F EPS marginally by -4.03%/-4.24% as we calibrate our forecasts, and introduce FY20 EPS. We maintain our ADD call with a higher Target Price of S$1.49 as we roll forward to FY19F, still based on 12x EV/EBITDA (slightly above +0.5 s.d. of its 5-year average mean). 
  • 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 | 2018-02-24
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 1.49 Up 1.450