Genting Singapore - CGS-CIMB Research 2018-08-03: 2Q18 Lady Luck Turns Shy; Mid-term Prospects Intact

Genting Singapore - CGS-CIMB Research 2018-08-03: 2q18: Lady Luck Turns Shy; Mid-term Prospects Intact GENTING SINGAPORE LIMITED SGX:G13

Genting Singapore - 2Q18: Lady Luck Turns Shy; Mid-term Prospects Intact

  • Genting Singapore (GENS)’s 2Q18 adjusted EBITDA of S$265.9m was a tad weaker vs. our S$280m forecast, largely due to lower luck factor of 2.6% (vs. our 2.95% expectation).
  • We deem it in line as on a hold normalized basis adj.EBITDA was c.S$293m. 1H18 adj. EBITDA of S$624.8m (+8.5% y-o-y) formed 51.6%/49.9% of our/consensus FY18F.
  • An unchanged interim dividend of 1.5Scts (1H17: 1.5Scts) was declared.
  • VIP saw market share gains. Mass faced some slippages, likely also due to regional competition, in our view. Extremely low impairments were a pleasant surprise.
  • Our estimates and Target Price (based on 11.5x FY19F EV/EBITDA, close to +0.5 s.d. of its 5-year historical mean) remain unchanged. Retain ADD.

VIP: volume and market share up; but luck factor weaker

  • Genting Singapore (GENS)’s estimated 2Q18 VIP gross gaming revenue (GGR) was at S$207m (-30.2% q-o-q/ +10.1% oy). Whilst est. rolling-chip volume grew a healthy 27% y-o-y to S$7.9bn; it was softened by lower luck factor of 2.6% (vs. 2Q17/1Q18: 3.0%/3.2%). Est. VIP market share grew to 50% as GENS managed to keep a hold on its VIP portfolio.
  • Overall est. 1H18 VIP GGR grew 29.5% with market share rising to 49.4% (vs. 1H17 VIP GGR of S$389.5m and market share of 34.9%).

~ ~ Where SG investors share

Mass slips, likely also on regional competition

  • Est. 2Q18 mass GGR and market share slipped to S$364.7m (-8.9% q-o-q/ -2.8% y-o-y) and 37.8% (vs. 1Q18/2Q17: 41.7%/40.3%), respectively. While we already expected softness in market share due to the flat RM/S$ in 2Q18, we believe GENS’s market share was also impacted by regional competition – i.e. opening of Naga 2 in Cambodia.
  • Genting Singapore (GENS) guided that it is looking to improve the mass volumes going forward. Overall est. 1H18 mass GGR was relatively unchanged (+1% y-o-y) and market share settled at 39.7% (vs. 1H17:39.5%).

Lower trade receivable impairments

  • Genting Singapore (GENS)’s 2Q18 trade receivable impairments were significantly low at S$0.48m (vs. 2Q17/1Q18: S$14.7m/S$9.4m), with some write-backs. Management guided that while it is has loosening its credit policies it plans to do it in a measured way.
  • While 1H18 trade receivable impairments of S$9.5m account for only 24.5% of our full-year estimate of S$39m, we keep our forecasts unchanged in the event this normalises in 2H18F.

Gearing for Japan bid

  • Genting Singapore (GENS) reiterated its commitment to a Japan investment, and is confident that it will be able to put a strong case despite the strong competition. It expects a request for proposal (RFP) by FY20-21F, which implies construction would potentially start earliest in FY21F, in our view. Osaka and Yokohama sites seem pretty certain, out of the intended 3 sites sanctioned by the recent bill.
  • We note GENS has incorporated several indirect wholly- owned subsidiaries in Japan.

Maintain ADD

  • We maintain our forecasts and ADD call.
  • We believe medium-term prospects for the stock are intact. Unchanged VIP credit policies are likely, in our view, given the comfort level GENS has with the current portfolio of clients. 
  • Also, YTD, the RM/S$ seems to have stabilised above CY17 levels.

Catalysts and risks

  • Potential catalysts are:
    1. higher luck factor;
    2. higher market share, thus volumes;
    3. lower costs;
    4. higher DPS; and
    5. receipt of 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 | 2018-08-03
SGX Stock Analyst Report ADD Maintain ADD 1.440 Same 1.440