Genting Singapore - Maybank Kim Eng 2018-08-06: ‘Unlucky’ Quarter; Further Upside May Be Limited

Genting Singapore - Maybank Kim Eng Research 2018-08-06: ‘unlucky’ Quarter; Further Upside May Be Limited GENTING SINGAPORE LIMITED SGX:G13

Genting Singapore - ‘Unlucky’ Quarter; Further Upside May Be Limited


Downgrade to HOLD from BUY with Target Price cut 14% to SGD1.26

  • We downgrade Genting Singapore (GENS) to HOLD as the shares are fairly valued on our revised Target Price. We see limited scope for future positive earnings surprises due to the decelerating Chinese economy and increasing competition.
  • In addition, 2Q18 earnings were below our expectation due to a low VIP win rate. Thus, we apply a lower 10x FY18 EV/EBITDA (slightly below 5-yr mean) vs. 12x previously and cut our Target Price to SGD1.26 from SGD1.46.
  • We believe Genting Singapore has a good chance of winning a Japanese casino licence (see report: Genting Singapore - The Last Potentially Great Gaming Market Opens Up | SGinvestors.io) but it will be at least a year before a winner is announced.




~ SGinvestors.io ~ Where SG investors share

2Q18 results disappointed due to low VIP win rate

  • Genting Singapore (GENS)’ 2Q18 core net profit of SGD162.8m (+2% y-o-y, -32% q-o-q) was below our expectation at 22% of our full-year estimate.
  • The shortfall was due to a low 2Q18 VIP win rate of 2.6% or ~25bps below our forecast. That said, 6M18 EBITDA of SGD624.8m (+9% y-o-y) and 6M18 core net profit of SGD403.1m (+29% y-o-y) were still within our expectations at 53% and 54% of our full-year estimates due to the high 1Q18 VIP win rate of 3.2%. 
  • The first interim DPS of 1.5cents (+0% y-o-y) was also within our expectation.


Earnings estimates unchanged but …

  • The 2Q18 normalized VIP win rate EBITDA was SGD285.3m or 24% of our full-year estimate. That said, we are turning cautious. Although 2Q18 Resort World Sentosa (RWS) VIP volume grew 27% y-o-y, 2Q18 industry VIP volume fell 14% y-o-y and 2Q18 RWS mass market GGR declined ~5% y-o-y and ~15% q-o-q.
  • While Genting Singapore (GENS)’ earnings may still meet our expectations due to market share gains, we opine that future earnings outperformances may be narrowing as industry gaming revenues are stagnating if not declining.


… future +ve earnings surprises may be limited

  • On VIP volume, Genting Singapore (GENS) believes the trade war between the US and China will dampen the Chinese economy and create less Chinese VIPs. Our research indicates a strong correlation between the Macau and Singapore VIP markets. Already, the 2Q18 Macau VIP GGR growth of +14% y-o-y was the narrowest since 1Q17 and consensus expects it to decelerate further.
  • On mass-market GGR, GENS is wary of increasing competition, especially from new Indochinese casinos.


Results analysis

  • 2Q18 EBITDA eased 9% y-o-y due to:-
    • 2Q18 VIP win rate of 2.6% which was ~40bps lower y-o-y;
    • 2Q18 mass market GGR of ~SGD350m which was ~5% lower y-o-y; But moderated by:-
    • 2Q18 VIP volume growth of 27% y-o-y;
    • 2Q18 impairment of trade receivables of only SGD0.5m (2Q17: SGD14.7m)
  • 2Q18 EBITDA fell 26% q-o-q due to:-
    • 2Q18 VIP volume contraction of ~15% q-o-q
    • 2Q18 VIP win rate of 2.6% which was ~60bps lower q-o-q;
    • 2Q18 mass market GGR of ~SGD350m which was ~15% lower q-o-q; But moderated by:-
    • 2Q18 impairment of trade receivables of only SGD0.5m (1Q18: SGD9.1m)
  • We previously utilised a higher 12x FY18 EV/EBITDA multiple, in line with the 9- year 12M forward EV/EBITDA mean. We now utilise a lower 10x, roughly in line with the 5-year 12M forward EV/EBITDA mean.
  • The 9-year 12M forward EV/EBITDA mean of 12x reflected the strong gaming revenues that RWS experienced in the first 2-3 years of operations. As gaming revenues at RWS have not recovered to those levels and are at risk of contracting again, we gather that it is more appropriate to utilise the 5-year 12M forward EV/EBITDA mean of 10x.





Yin Shao Yang Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2018-08-06
SGX Stock Analyst Report HOLD Downgrade BUY 1.26 Down 1.460



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