Genting Singapore - RHB Invest 2019-02-22: News Flow Around The Corner; Keep BUY


Genting Singapore - News Flow Around The Corner; Keep BUY

  • Maintain BUY, as we fine-tune our Target Price to SGD1.22 from SGD1.23, 10% upside plus 3% FY19F yield.
  • Our call and Target Price is on GENTING SINGAPORE LIMITED (SGX:G13)’s stable earnings and upcoming news flow on the Resorts World Sentosa (RWS) rejuvenation plan, as well as its bid for a casino licence in Japan.
  • FY18 revenue and core earnings came in at SGD2.5bn (+6% y-o-y) and SGD761m (+22% y-o-y), ie below our estimates but in line with the Street’s, at 91% and 97%.
  • Genting Singapore declared a final interim DPS of SGD0.02, bringing full-year DPS to SGD0.035 (flat y-o-y), which is within expectations.

FY18 results review.

  • The earnings miss was mainly due to higher-than-expected depreciation expenses of SGD315m (12% y-o-y) and higher-than-expected provisions for trade receivables of SGD58.1m (+20% y-o-y).
  • Management said the prudent approach on depreciation expense was carried out in view of its rejuvenation plan for RWS. Meanwhile, the unexpected increase in trade receivables was a result of its expansion in VIP market share – Genting Singapore has affirmed that this is a manageable amount moving forward.
  • On a positive note, adjusted EBITDA rose 18% y-o-y, largely due market share gains, higher non-gaming contributions and on-going productivity initiatives that widened margins.

Outlook remains stable.

  • Genting Singapore’s credit extension strategy and marketing efforts has led to a gain in VIP market share to 47%, from 37% in FY17. This supported its topline growth, mainly driven by customers from South-East Asia.
  • In FY19, we expect market share to be sustained at current levels, as Genting Singapore has now turned more prudent in granting credit to VIP players. On top of that, its non-gaming division saw an increase in daily visitor arrivals, which hit 22,000 in 4Q18 (1H18: 18,000) as well as higher average spending across all its product offerings.

Upcoming news flow.

  • As the group incurs higher depreciation cost moving forward, we believe this signals that its RWS rejuvenation plans are around the corner.
  • For Japan, details of the plan should be announced by the Japanese authority in 1H19. Management has also guided that a request for proposal (RFP) for the casino integrated resorts is expected in 2H19.

Forecast and risks.

  • We trim our FY19-21 projections by 7-11% as we imputed a more conservative VIP growth assumption (in view of competition from regional casinos), higher depreciation cost and took into account higher provisions for trade receivables.
  • We also imputed higher net cash of SGD3.2bn (vs SGD2.6bn in FY17) which supports our DCF-derived Target Price of SGD1.22 (WACC: 8.3%, TG: 0.5%).
  • Key risks to our call include fluctuations in win rate, market share contraction and a slowdown in tourist arrivals at RWS as the SGD strengthens against other currencies.

Singapore Research RHB Securities Research | https://www.rhbinvest.com.sg/ 2019-02-22
SGX Stock Analyst Report BUY MAINTAIN BUY 1.22 DOWN 1.230