Genting Singapore - RHB Invest 2018-05-11: Starting The Year With A Bang

GENTING SINGAPORE PLC SGX: G13

Genting Singapore - Starting The Year With A Bang

Upgrade to BUY (from Neutral) with revised Target Price of SGD1.42, from SGD1.34, offering 23% upside.
Genting Singapore’s 1Q18 core earnings of SGD239.3m trumped expectations as the overall performance was lifted by a 34% y-o-y surge in rolling volume, as well as favourable VIP holds of 3.2% (vs theoretical level of 2.75%).
The group is finalising the proposed reinvestment into RWS to ensure earnings accretion over the longer term. We deem the recent GENS share price weakness as unjustified.

Genting Singapore’s 1Q18 core earnings of SGD239.3m trumped expectations at 32.6% of both our and consensus’ full-year estimates. We attribute this to two key factors, ie the 34% y-o-y surge in rolling volume, as well as favourable VIP holds of 3.2% during the quarter.
Bad debt provision meanwhile improved 40% y-o-y to SGD9.1m, as management continued its efforts to ensure timely collections of receivables.

Management pointed out that the group is looking to grow its VIP business further over the near term, to capitalise on the favourable macro environment. This may involve being more aggressive on credit offerings to entice high rollers within the region.
The group had successfully expanded its VIP customer base over the past few quarters. The credit allowed per head meanwhile remains largely unchanged. We laud this move which, in our view could help limit its exposure to individual accounts whilst at the same time propel growth going forward.

With respect to its proposed reinvestment into RWS, Genting Singapore is finalising the proposal to ensure earnings accretion in the long run. We expect more financial details in 2H18.

Management expects the Integrated Resorts Implementation Bill in Japan to be passed later this year, following the submission for debate on 27 Apr 2018.
On the other hand, it is actively preparing for the ensuing bidding exercise by the respective government authorities. Previously, the group had announced its intention to participate in the bidding for casino licences – likely across all the potential cities – as it acknowledges the potential competition from other operators. We expect an official bidding to be called in 2019.

We upgrade our 2018F-2019F EPS by 8-14% to take into account the favourable VIP hold in 1Q18, as well as our assumptions for higher volume growth at its VIP segment going forward to be in line with management’s positive near-term outlook.
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.

Upgrade to BUY with new DCF-derived Target Price of SGD1.42, following our earnings revision and to capture its latest net cash position.
Given its sturdy start to the year, we believe the recent weakness in Genting Singapore's share price is unjustified. We foresee likely re-rating ahead, driven by further growth potential at its VIP segment and potential positive news flow from the Japanese Government’s ongoing push for the legalisation of integrated resorts.

Singapore Research Team RHB Invest | https://www.rhbinvest.com.sg/ 2018-05-11

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