Genting Singapore - CIMB Research 2018-04-05: Better Casino Odds Now

Genting Singapore - CIMB Research 2018-04-05: Better Casino Odds Now GENTING SINGAPORE PLC G13.SI

Genting Singapore - Better Casino Odds Now

  • At 7.3x forward EV/EBITDA, the market is likening GENS’s FY18F to FY15 (adjusted EBITDA fell 29.9% y-o-y, EBITDA margin below 40%). This is unwarranted, in our view.
  • The market has overly discounted Genting Singapore (GENS) despite its improved margins and balance sheet prowess, in our view. Higher DPS is a highly likely catalyst.
  • FY18F VIP GGR growth is likely to be supported by Singapore VIP growth and easing VIP credit policies. Mass market share sustained by stronger RM/S$.
  • We expect EBITDA margins to be preserved by tight cost controls, especially lower FY18/19/20F trade receivables impairment of S$38.1m/41.0m/43.6m.
  • Maintain ADD, with marginally lower target price of S$1.40 (from S$1.49), based on 11.5x FY19F EV/EBITDA (12x previously) for flattish forward earnings growth.

Market’s expectation for adjusted EBITDA contraction unwarranted 

  • Genting Singapore (GENS) last traded at -1 s.d. below historical mean in FY15 when:
    1. gaming revenues fell 21% y-o-y;
    2. trade receivable impairments were c.S$270.7m; and
    3. EBITDA margin was 34%. 
  • We think GENS is on better footing now, as the environment for Singapore VIP and GENS’s mass market has improved. Trade receivable balance narrowed to all-time low of S$126.9m at end-FY17, pointing to lower risk of large impairments. Even in FY14, when adjusted EBITDA growth was zero, it traded closer to c.10x EV/EBITDA (5-year mean).

Higher Singapore VIP volumes and easing credit policies 

  • Singapore’s VIP volume correlation of c.0.82x to Macau’s VIP baccarat GGR and our Hong Kong gaming analyst’s estimated 15-20% y-o-y growth for Macau GGR in CY18-20F are positive signals for Singapore VIP volume, in our view. 
  • We forecast FY18/19/20F Singapore VIP volume growth of 5%/5%/2%. GENS was cautious with VIP credit previously but intends to ease up on this in FY18F. This lends strength to FY18/19/20F our GENS VIP market share estimates of 40.0%/40.5%40.5% (4Q17:42%).

Better mass market share with stronger RM against S$ 

  • Genting Singapore (GENS)’s mass market share seems to have high correlation of 0.92x with the RM/S$. Our in-house view is that there will be short-term strength in the RM/S$ exchange rates. This supports our FY18/19/20F mass market share estimates for GENS of 40% p.a.

Lower risk of trade receivable impairments; EBITDA margins intact 

  • Given that GENS’s trade receivable balance at end-FY17 declined y-o-y to S$126.9m, we forecast lower FY18/19/20F trade receivable impairments of S$38.1m/41.0m/43.6m (30% on previous trade receivable). 
  • With the tight grip on costs and the slight topline recovery, we forecast GENS’s EBITDA margins to stabilise at the 47-48% mark in FY18-20F, similar to the level in FY17 (48.1%).

Higher DPS in the offing? 

  • Genting Singapore (GENS)’s FY17 DPS was at an all-time high of 3.5 Scts, surprising the market. 
  • Although the company has not committed to repeating this in FY18F, we believe there is a high chance that GENS could raise DPS again, given that absolute dividends (S$360m-420m, based on our estimates) would form a mere 9.2-12.4% of its potential cash pile and we expect it to register stronger net cash position and sustained earnings in FY18-20F.

Maintain ADD with target price of S$1.40 

  • We cut FY18-20F EPS by 4.3-5.4% post housekeeping exercises. Our Target Price basis is now 11.5x FY19F EV/EBITDA, 0.5 s.d. above the historical 5-year mean, given our forecasts of flatter adjusted EBITDA growth in FY18-20F. This lowers our Target Price to S$1.40. 
  • Potential catalysts are:
    1. higher DPS, and
    2. a Japan win, which we have not incorporated. 
  • Risks are:
    1. lower adjusted EBITDA, and
    2. market share decline. 
  • GENS’s FY19F EV/EBITDA is now below its historical average multiple (10x) and regional peers' average (11.1x).

Cezzane SEE CIMB Research | LIM Siew Khee CIMB Research | 2018-04-05
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 1.40 Down 1.490