Genting Singapore - DBS Research 2019-08-05: Time To Take A Chance


Genting Singapore - Time To Take A Chance

  • GENTING SINGAPORE (SGX:G13)'s 2Q19 adjusted EBITDA of S$294m was in line with expectations, thanks to an elevated luck factor.
  • VIP chip volume picked up in 2Q19, while mass market business declined significantly.
  • Interim dividend of 1.5Scts declared.
  • Maintain BUY with unchanged Target Price of S$1.20.

What’s New

Adjusted EBITDA in line with expectations, underpinned by exceptional VIP win rate.

  • GENTING SINGAPORE (SGX:G13)'s 2Q19 adjusted EBITDA of S$294m (+11% y-o-y, -11% q-o-q) was in line with our and consensus’ estimates, with 1H19 adjusted EBITDA forming 53% of FY19 consensus estimate. This was despite a considerable decline in the mass gaming business and a substantial credit impairment during the quarter.
  • Genting Singapore scored a notably higher than average VIP win rate of 3.7% (3% on average in past 9 quarters) and higher VIP volumes. On a hold-normalised basis, adjusted EBITDA would have come in at S$230m (-20% y-o-y).

Recovery in VIP chip volumes, but mass market business remains challenging.

  • VIP rolling chip volumes came in at c.US$6.4bn (+9% y-o-y, +14% q-o-q), while the mass market business experienced a 10% drop in volume.
  • Looking ahead, we maintain a cautious stance on the gaming business, amid growing uncertainty in the macroeconomic environment, and intense competition from regional casinos.

Marked increase in bad debts should be transitory.

  • Impairment on trade receivables of S$47.3m was considerably higher than Genting Singapore’s historical average of S$10-15m, as the company decided to be more prudent in light of the elevated luck factor during the quarter. This should normalise in subsequent quarters, but may remain slightly higher than the typical run-rate due to macroeconomic headwinds.

Resilient operating cash flow and sustained balance sheet strength.

  • 2Q19 operating cash flow was considerably robust at S$341m (+32% y-o-y, on-par q-o-q), while Genting Singapore’s balance sheet remained in a solid net cash position of S$3,373m, following the repayment of S$680m of borrowings during the quarter.

Higher near-term capex requirements may dampen free cash flows.

  • As part of the S$4.5bn Resort World Sentosa renewal project, Genting Singapore will probably incur around S$800m-S$1,000m for land acquisition this year, with the remainder spread between mid-FY20-FY24 (around S$250m/quarter after construction begins in mid FY20).
  • The expansion plan is on track, with the complete revamp of the existing theatre scheduled for re-opening in 2021. As such, we are revising our capex estimate in FY19 up to S$1bn.

Japan integrated resort (IR) opportunity progressing according to plans.

  • Regarding the Japan IR opportunity, Genting Singapore received confirmation that its Request-for-Concept (RFC) registration was officially approved by Osaka’s local government, and is now working on another RFC submission which is due by 16 September.
  • Although there is no concrete indication as to when the RFC will be issued, the management shared that the earliest closing would be in 1Q20, and that the winning operator should be selected by 2Q20.

Interim dividend of 1.5Scts (flat y-o-y); trimmed FY19 dividend estimate.

  • We believe the company is on track to match FY18’s dividend of 3.5Scts which implies a dividend yield of around 3.8%. To adopt a more realistic and prudent stance, we have revised our dividend expectations down to 3.5Scts/share, from 4.0Scts/share in FY19 and 4.5Scts/share in FY20.
  • An increase in dividends the next few years appear unlikely, given Genting Singapore’s higher capital spending plans and the management’s prudent stance.

Over-penalised by the market; maintain BUY with unchanged Target Price of S$1.20.

  • With Genting Singapore trading at 6.3x EV/EBITDA (FY19), which is around -2SD of its mean valuation of 11.7x, we believe the company has been over-penalised by the market for softness in its near-term EBITDA and free cash flows, and the current share price is at an attractive level.
  • We remain positive on Genting Singapore’s medium and long term growth prospects, and the company deserves to trade at -1SD of EV/EBITDA.
  • Clinching the Japanese integrated resorts project in Osaka would be a near-term re-rating catalyst.

Singapore Research Team DBS Group Research | https://www.dbsvickers.com/ 2019-08-05
SGX Stock Analyst Report BUY MAINTAIN BUY 1.200 SAME 1.200