Genting Singapore - RHB Invest 2018-02-26: Ending The Year On A Decent Note

Genting Singapore - RHB Invest 2018-02-26: Ending The Year On A Decent Note GENTING SINGAPORE PLC G13.SI

Genting Singapore - Ending The Year On A Decent Note

  • 2017 results came within expectations, as Genting Singapore closed 4Q17 at average VIP holds of 2.7% while bad debt provisions stayed healthy at SGD4.7m. 
  • Management reaffirms its intention to go all out in Japan while acknowledging that bidding competition is likely to be stiff. 
  • On the domestic front, the group is finalising the proposed reinvestment into RWS to ensure earnings accretion in the long run. 
  • Maintain NEUTRAL, with new DCF-based Target Price of SGD1.34 (from SGD1.21, 4% upside).

4Q17 results review. 

  • Genting Singapore's 4Q17 revenue and core earnings of SGD580.1m and SGD131.8m respectively were registered. 
  • Numbers were generally higher y-o-y, due to increased overall gaming volume, while bad debt provisions improved 88% y-o-y to SGD4.7m. Sequentially, performance was dragged by above average VIP holds of 3.1% in 3Q17 (despite flattish rolling volume) and extra costs incurred in 4Q17 on bonus provisions for its casino management team. 
  • All in, 2017 core earnings of SGD690.3m came within expectations at 97.5% and 101.6% of our and consensus full-year estimates respectively.

Surprise dividend payment. 

  • Genting Singapore announced a final DPS of SGD0.02, bringing its 2017 DPS to SGD0.035 (2016: SGD0.03). Management highlighted that the increment was decided after taking into account the group’s internal cash flow projections over the next five years, as it remains committed to go all out in Japan upon official enactment of the integrated resorts bill.

To re-invest in Resorts World Sentosa (RWS). 

  • With respect to its proposed re-investment into RWS, Genting Singapore is currently finalising the concept and design to ensure earnings accretion in the long run. Management pointed out that the reinvestment is likely to involve embarking on an innovation drive involving technology implementation to boost efficiency and overall customer satisfaction while, at the same time, reducing physical manpower dependence.
  • We expect more financial details to be shared over the next 3-6 months.

Japan the next holy grail. 

  • Financial details on Japan’s proposed integrated resorts bill have been more forthcoming lately. Local media reported that levies of JPY3,000-10,000/entry would likely be imposed on locals, while the casino operator would be subject to a tiered gaming tax rate of 30-50%. 
  • Management reaffirms its intention to participate in bidding for casino licenses – likely across all the potential cities – as the group acknowledges the potential competition from other operators. We expect the implementation bill to be passed later this year, with bidding likely to be called for come 2019.

Forecasts and risks. 

  • We upgrade FY18F-19F EPS by 4-5% after updating our model for the full-year results. 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 SGD1.34 DCF-derived Target Price (from SGD1.21, 3% upside), following our earnings revision and to capture its latest net cash position. While we are glad to see continued improvements under Genting Singapore’s overall gaming performance, we believe the current valuation is fair and caution that a pricing war to bid for casino licenses in Japan is imminent.

Singapore Research Team RHB Invest | http://www.rhbinvest.com.sg/ 2018-02-26
RHB Invest SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 1.34 Up 1.210