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

GENTING SINGAPORE LIMITED (SGX:G13)

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.

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.

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.

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.

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