Genting Singapore - CGS-CIMB Research 2019-08-03: Lucky 2Q19, saving bets on 2H


Genting Singapore - Lucky 2Q19, saving bets on 2H

  • GENTING SINGAPORE LIMITED (SGX:G13)'s 1H19 adj. EBITDA (S$624.1m) was 52.2%/52% of our/consensus (S$1.17bn/S$1.18bn) FY19F, with 2Q19 adj EBITDA growing +10.7% y-o-y.
  • However, we deem it slightly below as it was led by a high win rate. We lower FY19-21F EBITDA forecasts as 2H19 could see slower growth.
  • Maintain ADD. We still like Genting Singapore’s longer-term prospects. Target Price is lower at S$1.00 on unchanged 8x CY20F EV/EBITDA (close to -0.5 s.d. below mean).

Lady luck leads 2Q19 adjusted EBITDA

  • Genting Singapore delivered a strong showing in 2Q19, with adjusted (adj.) EBITDA of S$294.4m, growing 10.7% y-o-y mainly on a higher VIP win rate of 3.7% (2Q18: 2.6%) which spurred VIP GGR and mitigated the impact of higher trade receivable impairments (S$47m vs. 2Q18: S$0.5m).
  • The strong 2Q19 kept 1H19 adj. EBITDA flat at S$624.1m (1H18: S$624.8m). 2Q19 adjusted EBITDA margin was 46.2% (2Q18: 47.5%). 1H19 EBITDA margins were 48.9% of our full-year forecast (1H18: 50.6%).

VIP gaming market share stabilises

  • We estimate 2Q19 VIP volumes grew c.9.5% y-o-y, narrowing the fall in 1H19 volumes to - 5% (vs. c.18% y-o-y fall seen in 1Q19). 2Q19 win rate was at 3.7% (vs. 2Q18: 2.6%), taking the 1H19 win rate to 3.5% (vs. 1H18: 2.9%).
  • We estimate Genting Singapore took 45.5% of the 1H19 Singapore VIP rolling chip volumes (vs. 1Q18: 49%) and 1H19 GGR grew 14.2% y-o-y.

Mass gaming faces regional competition

  • We estimate 2Q19 mass GGR fell by 7.6% y-o-y on c.37% market share (vs. 2Q19: 37.8%), taking 1H19 mass GGR down by 4.3% y-o-y. Having said that, we think overall Singapore mass saw y-o-y shrinkage anyways on competition from regional markets and increase in local levies since Apr 19.
  • Genting Singapore guided that it had increased spending to tap into the regional market to lift the mass business.

Soft near-term outlook but gearing up for the future

  • Genting Singapore guided that it is cautious on the VIP segment given the global trade uncertainties and highlighted that competition in the region may continue to intensify in the near future; hence, innovation is necessary to diversify its appeal to target markets in the region, i.e. RWS 2.0, in our view.
  • Its RFC registration for Osaka was officially approved by the local government recently. Hopes are for the selection process to occur by 2Q20F, as the national guidelines and gaming commission could be formed and enacted by end-FY19F.

Maintain Add on longer-term prospects

  • Given a potentially softer 2H19, we trim our FY19-21F adj. forecasts due to higher trade receivable impairments and higher operating costs. Our EPS cuts lead to a lower Target Price of S$1.00, based on an unchanged 8x EV/EBITDA (close to -0.5 s.d. below mean).
  • Potential re-rating catalysts are higher gaming revenues and margins.
  • Downside risks are lower gaming revenues, higher trade receivable provisions and failure to secure any Japan opportunities.

Cezzane SEE CGS-CIMB Research | https://research.itradecimb.com/ 2019-08-03
SGX Stock Analyst Report ADD MAINTAIN ADD 1.060 SAME 1.060