Genting Singapore - UOB Kay Hian 2019-02-22: 4Q18 Gaming Operations Still Intact. VIP Growth To Take A Break In 2019

GENTING SINGAPORE LIMITED (SGX:G13) | SGinvestors.io GENTING SINGAPORE LIMITED (SGX:G13)

Genting Singapore - 4Q18: Gaming Operations Still Intact. VIP Growth To Take A Break In 2019

  • Genting Singapore’ 4Q18 EBITDA grew 7% y-o-y but full-year results were slightly below expectations. VIP y-o-y volume grew 10% while mass market GGR also saw decent growth.
  • We expect 2018’s strong VIP segment growth to pause in 2019 as Genting Singapore is unlikely to further relax its credit policy.
  • While lacking catalysts at home until RWS properties are refurbished, Genting Singapore’s share price is expected to trend up with Genting Singapore’ expected bid submission for Japan IR’s concession in 2H19.
  • Maintain BUY. Target price: S$1.32.



4Q18 RESULTS


Slightly below expectations.

  • GENTING SINGAPORE LIMITED (SGX:G13) reported 4Q18 adjusted EBITDA of S$286m (+12.1% y-o-y, -10.3% q-o-q), bringing 2018 adjusted EBITDA to S$1230m (+6.8% y-o-y), accounting for 96% of our forecast.

VIP: RCV recorded sixth consecutive quarter of positive yoy growth.

  • Unsurprisingly, Genting Singapore continued to deliver more upbeat growth vs its rival Marina Bay Sands (MBS) in the VIP segment, having recorded y-o-y rolling chip volume (RCV) growth of 10% in 4Q18 and 22% in 2018.
  • We estimate VIP GGR grew 40% y-o-y in 4Q18, mainly due to the strong win rate of 3.4% in 4Q18 (4Q17: 2.7%). On a q-o-q basis, RCV dropped marginally by 3% in 4Q18.

Mass market: A decent quarter.

  • Mass market GGR was decent with an estimated 5% y-o-y growth.

Provisions spiked in 4Q18, GENS views that it is at a manageable level.

  • In 4Q18, Genting Singapore’ provisions on receivables spiked to S$36m (4Q17: S$5m, 3Q18: S$13m), although receivables remained stable at S$144m. The company expects provisions to remain at manageable levels, but credit provision growth would be prudently flattish from hereon, the first indication of its non-expansionary credit practice since 2018.

Expenses increased due to operations in Japan…

  • Genting Singapore’ administrative expenses rose 33% y-o-y in 4Q18, mainly reflecting growing expenses in Japan, which include the rental and staff costs of its new office in Osaka, in preparation for the integrated resort (IR) bidding.

… while depreciation spiked up as a major property rejuvenation necessitates a more prudent depreciation policy.

  • Meanwhile, Genting Singapore’ depreciation also spiked 40% y-o-y to S$104m in 4Q18, attributed to the adoption of a more prudent policy that assumes a shortened lifespan for assets (from 15 years to 10 years) at RWS, with there being a major property refurbishment plan in place.
  • While the refurbishment plan would only be disclosed in 2Q19, we understand that the company is bullish on the impact of the rejuvenation exercise.


STOCK IMPACT


VIP segment’s growth could be muted in 2019; no intention to further relax credit policy.

  • After relaxing its credit policy and successfully spurring its VIP RCV growth in 2018, Genting Singapore has no intention for further credit relaxation. This, coupled with the uncertainty on the macro front, suggests that the VIP segment’s growth would take a pause in 2019.
  • Nevertheless, Genting Singapore remains upbeat on VIP visitorship from Southeast Asia, although it is mindful that the on-going US-China trade tensions could impact its North Asia VIP players’ arrivals and credit worthiness.
  • Genting Singapore declared a 2 S cents final DPS, bringing full-year DPS to 3.5 S cents, a tad higher than our assumption of 3 S cents DPS.

Japan RFP expected to kick in by Aug-Sep 19.

  • Genting Singapore expects the Japanese gaming authority to issue a request for concept (RFC) by 2Q19, followed by a request for proposal (RFP) by Aug-Sep 19. Details on the bidding, such as capex and stake holding, are still unavailable at the moment, although we understand that Osaka’s (one of the IR sites) wish list is see a minimum US$8b investment by the winning bidder.
  • Genting Singapore is gearing up its efforts in understanding the environment to enhance its success rate in the bidding. We expect the winning bidder to be announced in 1H21.


EARNINGS REVISION/RISK

  • We trimmed our EBITDA forecasts by 4% each for 2019-20, mainly due to our expectation of zero growth in VIP RCV (previously 3-4%) and revision in provisions for receivables.


VALUATION / RECOMMENDATION

  • Maintain BUY but with a lower target price of S$1.32 (previously S$1.38), following our earnings forecast adjustments. Valuation is still attractive at 7.7x 2019F EV/EBITDA.
  • Despite the lack of excitement in Singapore operations, we expect valuations to trend up over time, supported by the Japan IR concession bid.
  • Recall that Genting Singapore’s share price was on the uptrend from the RFP stage in 2006 until the opening of RWS in Feb 10. Genting Singapore traded at mid-teens EV/EBITDA from RWS’ commencement until 2H15 as its strong growth delivery fuelled optimism for further growth, but it derated thereafter as it was affected by low gaming volumes and mounting bad debts tied to mainland China VIP gamblers.
  • Our S$1.32 target price imputes an “option value” of 10 S cents for the Japan greenfield opportunity (assumption: 30% success rate, US$10b development cost with IRR 13% and 50% JV stake). The target price implies 9.8x 2019F EV/EBITDA.





Vincent Khoo CFA UOB Kay Hian Research | Yeoh Bit Kun UOB Kay Hian | https://research.uobkayhian.com/ 2019-02-22
SGX Stock Analyst Report BUY MAINTAIN BUY 1.32 DOWN 1.380



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