Genting Singapore PLC - UOB Kay Hian 2018-05-11: 1Q18 VIP Segment Wows

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GENTING SINGAPORE PLC SGX: G13

Genting Singapore PLC (GENS SP) - 1Q18: VIP Segment Wows

• Genting Singapore (GENS)’ results came in slightly above expectations on a combination of good luck factor and strong VIP gaming volumes.
• We expect valuations to trend up over time, supported by stable Singapore operations and as its bidding for Japan’s IR concession builds up to the requests for proposals (RFP) stage (expected in 2019).
• Maintain BUY with a higher target price of S$1.38.

RESULTS

• Above expectations. Genting Singapore (GENS) reported a 1Q18 adjusted EBITDA of S$359m (+26.7% y-o-y, +40.7% q-o-q), representing 30% of our full-year forecast. The outperformance in 1Q18 was mainly contributed by a strong VIP win rate, strong growth in VIP rolling chip volume (RCV) and, to a smaller extent, lower-than-expected cost incurred. Adjusting for luck, we estimate 1Q18’s EBITDA made up about 27% of our full- year forecast, largely in-line.
• VIP segment: Aided by both impressive volume growth and strong win rate. GENS’ RCV recorded strong 34% y-o-y growth in 1Q18, reaching an estimated S$9.4b level, the highest since 4Q15. 1Q18 is the third consecutive quarter in which GENS saw positive y-o-y growth in RCV (recall that GENS’ RCV fell y-o-y for 12 consecutive quarters prior to 3Q17). Meanwhile, GENS’ win rate was at 3.2% in 1Q18 (vs theoretical win rate of 2.85%), higher than 1Q17’s 2.95% and 4Q17’s 2.7%.
• Mass market delivered decent growth. We estimate mass market (table and slot) GGR grew in the mid-single-digits both y-o-y and q-o-q, with market share at about 41% in 1Q18 (4Q17: 39%, 1Q17: 38%).
• All in all, GENS’ 1Q18 gaming revenue was up 17% y-o-y and 22% q-o-q. We estimate GENS’ total GGR market share improved to 40% in 1Q18, from 4Q17’s 36% and 1Q17’s 38%.
• Non-gaming businesses also saw improvement. For the non-gaming businesses, revenue increased 10% y-o-y with visitor arrival to the flagship Universal Studio Singapore increasing 9% y-o-y in 1Q18. On a q-o-q basis, revenue was marginally up by 3%.

STOCK IMPACT

• VIP RCV market share continues to improve… Genting Singapore (GENS)’ strong RCV growth contrasts its rival Marina Bay Sands’ (MBS) RCV growth. Essentially, we estimate that MBS’ RCV dropped 23% y-o-y in 1Q18, the lowest since 4Q16 and the most severe drop since 4Q16. In terms of market share, RWS has seen a y-o-y improvement since 2Q17. RWS’ RCV market share stood at 49% in 1Q18, vs 1Q17’s 35% and 4Q17’s 41%.
• … on customer base expansion. Management attributed the strong growth in VIP volume to a wider customer base across the region. Over the next few quarters, GENS guided that it will loosen its credit policy a little bit more to attract VIP gamblers. Despite a q-o-q uptick, GENS’ impairment of receivables remains low at S$9m (1Q17: S$15m, 4Q17: S$5m) at 1Q18, representing merely 5% of total receivables. The healthy balance sheet provides flexibility to GENS to relax its credit policy further.
• Optimistic on Japan IR bidding. The debate on the Integrated Resorts (IR) Implementation Bill is expected to start soon, after it was submitted to Japan’s National Diet for debate on 27 April. Japan’s Deputy Cabinet Secretary, Yasutoshi Nishimura, said that it is the “strong wish” of the Japanese government to pass the bill in the current parliamentary session, which ends on 20 June. 
• GENS is optimistic about the progress of the establishment of IRs in Japan and is actively preparing for the ensuing bidding exercise by the respective government authorities.

EARNINGS REVISION/RISK

• We have revised our 2018-20 EBITDA forecasts upwards by 6-8% on revisions of:
  1. win rate for 2018,
  2. gaming volume growth for VIP, and
  3. fine-tuning our cost assumptions.

VALUATION/RECOMMENDATION

• Maintain BUY on Genting Singapore (GENS) with a higher target price of S$1.38, following our earnings forecast adjustment. GENS’ valuation appears attractive at 8.3x 2018 EV/EBITDA, which is below its mean-1SD. 
• Supported by its stable Singapore operations with new developments in its bidding for Japan’s IR concession acting as an event catalyst, we expect GENS’ valuation to expand over time.
• Our target price has imputed a 10 S cents Japan “option value” for the Japan greenfield opportunity (assumption: 30% success rate, US$10b development cost with IRR 13% and 50% JV Stake). Target price of S$1.38 implies EV/EBITDA of 10.3x in 2018.

Vincent Khoo CFA UOB Kay Hian | Yeoh Bit Kun UOB Kay Hian | https://research.uobkayhian.com/ 2018-05-11

SGX Stock Analyst Report BUY Maintain BUY 1.38 Up 1.300