Genting Singapore - RHB Invest 2018-11-15: Stable Outlook; Stay At BUY


Genting Singapore - Stable Outlook; Stay At BUY

  • Maintain BUY with a new DCF-derived Target Price of SGD1.23, 32% upside, as we update our DCF assumptions and roll over our valuation base year to FY19.
  • In view of a resilient financial performance, sustainable margins and expansion of its market share, we think the current Genting's share price is unjustified as it is trading at a discount to its 5-year EV/EBITDA average of 10x.
  • Our SGD1.23 Target Price translates into an implied EV/EBITDA of 9x, which we deem close to its historical average.

Resilient FY18 performance.

  • Genting Singapore's 9M18 revenue of SGD1,874m (+3% y-o-y) and core net profit of SGD616.1m (+12% y-o-y) were within our expectations at 73% but above consensus estimates at 78%.
  • Moving forward, we believe earnings will be buoyed by its existing facilities at the Resorts World Sentosa (RWS), such as Universal Studios and S.E.A. Aquarium, which should continue to gain tourists attraction which, in turn, would drive its casino business.

More credit for VIPs.

  • Genting Singapore’s latest earnings report revealed a 42% y-o-y rise in trade receivables for 9M18 to SGD654m compared to a slowdown of 57% in 9M17 as the group slowly loosens the tap for its VIP customers. As this was accompanied by a 13% y-o-y increase in VIP rolling chip volume, we believe the company could have granted higher credit limits to its premium and VIP customers. As a result, Genting Singapore is likely to attract and retain a higher volume of premium and VIP customers, leading to an expansion in its gaming market share in Singapore.
  • Sustainable operating margins at current levels, as the provision for bad debts has been narrowing. Bad debt provision hit an all-time low of SGD0.5m in 2Q18 while cumulative 9M18 bad debt provision improved 49% y-o-y to SGD22.5m (vs 9M17: SGD43.6m).

Long term re-rating catalysts.

  • The reinvestment proposal for RWS remains at the discussion stage where the group has engaged with an external consultant (more details probably in 8Q88). It has also set up offices in Osaka and Yokohama, marking its interest in constructing an IR in these cities.
  • It is actively engaging with the respective stakeholders to better understand the business environment in these cities.

Forecasts and risks.

  • We update our DCF assumptions (WACC: 8.8%, TG: 8.8%) and roll over our valuation base year to FY88. We also input a higher average ticket price for its non-gaming segment as well as a slightly higher VIP rolling volume growth assumption into our forecast.
  • Key risks to our call include fluctuations in win rates and a slowdown in tourist arrivals at RWS as the SGD strengthens against regional currencies.

Maintain BUY

  • Maintain BUY with a lower Target Price of SGD8.88 from SGD8.88, 88% upside.
  • At SGD8.88, we believe the stock is currently undervalued since it is trading at a relatively low EV/EBITDA of 8x, vs the regional peer average of 88x.

Singapore Research RHB Securities Research | 2018-11-15
SGX Stock Analyst Report BUY MAINTAIN BUY 1.23 DOWN 1.42