Genting Singapore - CGS-CIMB Research 2018-07-26: Prospects Still Intact; The Final Countdown In Japan

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GENTING SINGAPORE LIMITED SGX:G13

Genting Singapore - Prospects Still Intact; The Final Countdown In Japan

• 2Q is typically sequentially weaker but market share gains will still be the main focus, in our view. Genting Singapore (GENS) is expected to announce its results on 3 Aug evening.
• We estimate 2Q18F/1H18F adjusted EBITDA was S$280.8m/S$639.8m, which forms 23.2%/52.9% of our full-year estimate (S$1.21bn) and consensus (S$1.25bn).
• Japan finally passed the Integrated Resorts (IR) bill last week.
• It is no secret that GENS is set on bidding for a Japan integrated resort and its prime balance sheet avails it to large meaningful undertakings, in our view.
• Maintain ADD with a slightly higher Target Price of S$1.44.

MBS: lower rolling chip volumes; market share boon for GENS?

• MBS’s 2Q18 adjusted-property EBITDA was low at 20.5% but was unable to pull up overall adjusted EBITDA. 
• The last time MBS saw lower VIP volumes, we note GENS saw an uptick in market share. However, underlying Singapore VIP volumes were likely weak.

2Q18F preview: Seasonally weaker, but unfazed

• We estimate GENS’s 2Q18F adjusted EBITDA was S$280.8m (-21.8 q-o-q, -4.1% y-o-y), as while VIP market share likely grew to 48% (1Q17: 34.1%), we have conservatively imputed a luck factor of 2.95% for 2Q18 (2Q17: 3.00%); thus capping GGR growth. We think this is fair as 2Q is typically seasonally weaker.
• Overall, this leads to a 1H18F EBITDA of S$m (+11.1% y-o-y), driven by higher VIP/mass market shares of 48.6%/41.6% (vs. 1H17: 34.8%/39.5%).

Longer-term prospects intact

• VIP credit policies are likely to remain unchanged given the comfort level GENS has with the current portfolio of clients, and YTD, the RM/S$ seems to have stabilised above CY17 levels. 
• Trade receivable impairments, another common concern, are estimated to be stable at an average of c.S$10m/quarter for CY18F (vs. average S$12m/quarter in CY17). Such factors keep GENS’s CY18F VIP/mass market shares at 47.2%/41.6%, (vs. CY17: 37.1%/39.4%), and adjusted EBITDA margins at c.%, in our view.

Japan – the final countdown; balance sheet is primed

• Last week, Japan finally passed the Integrated Resorts (IR) Implementation Bill, paving the way for three casino licence awards tentatively by CY20-22F. GENS plans to bid for “sizeable and meaningful projects” which implies its eyes are on opportunities in metropolitan cities (i.e. Osaka, Tokyo, Yokohama) where market estimates could cost c.US$10bn-12bn each. 
• GENS has a strong hand in potential bids given it is currently in a net cash position, in our view.

Maintain ADD with a slightly higher Target Price of S$1.44

• We tweak our FY18/19/20F core EPS forecasts up by 2.8%/1.9%/2.1%, largely to account for higher VIP market share, which leads to our higher target price, based on an unchanged 11.5x FY19F EV/EBITDA (0.5 s.d. above the historical 5-year mean). 
• We maintain our ADD rating.

Catalysts/Risks

• Potential catalysts are:
  1. higher luck factor;
  2. higher market share, thus volumes;
  3. lower costs;
  4. higher DPS; and
  5. obtaining a licence in Japan, which we have not incorporated into our forecasts.
• Risks are:
  1. lower adjusted EBITDA; and
  2. market share decline.

Cezzane SEE CGS-CIMB Research | LIM Siew Khee CGS-CIMB Research | https://research.itradecimb.com/ 2018-07-26

SGX Stock Analyst Report ADD Maintain ADD 1.44 Up 1.40