Genting Singapore - Maybank Kim Eng 2019-08-04: Trade War & Casino Entry Levy Hike Beginning To Weigh


Genting Singapore - Trade War & Casino Entry Levy Hike Beginning To Weigh

Maintain HOLD but trim Target Price by 5% to SGD0.99

  • GENTING SINGAPORE LIMITED (SGX:G13)'s 2Q19 results did not disappoint, but only due to a high VIP win rate. More crucially, trade receivables impairment is rising and the mass market is weakening. The former due to the United States-China trade war and the latter due to the casino entry levy fee hike.
  • We cut our FY20/FY21 core net profit estimates by 10%/8%. Rolling forward our valuation base year to FY20 from FY19 and ascribing an unchanged 8x EV/EBITDA (-1SD to long term mean), we trim our Target Price to SGD0.99 from SGD1.04.

2Q19 earnings & dividends within our expectations…

  • Genting Singapore's 2Q19 core net profit of SGD166m (+2% y-o-y, -20% q-o-q) was within our expectation at 25% of our FY19 estimate but a tad below consensus at 23% of consensus FY19 estimate.
  • 6M19 core net profit of SGD373.8m (-7% y-o-y) was still a tad above our expectation at 56% of our FY estimate due to 6M19 VIP win rate of 3.5% which was above our forecast of 2.9%.
  • Interim DPS of 1.5cents (+0% y-o-y) was in-line with our expectation. Historically, Genting Singapore declares a slightly larger DPS in 2H.

… but fundamentals continue to weaken

  • On closer inspection, 2Q19 results were buoyed by a high 2Q19 VIP win rate of 3.7%. 2Q19 impairment of trade receivables of SGD47.3m was the highest since 3Q16. More crucially, the high margin 2Q19 mass market gross gaming revenue (GGR) fell ~3% y-o-y and ~10% q-o-q due to the Singaporean citizens and permanent residents casino entry levy hike of 50% that came into effect on 4 Apr 2019.
  • Genting Singapore stated that Resorts World Sentosa’s mass market will need time to stabilise.
  • See attached PDF report for Genting Singapore's 2Q19 results analysis.

Cut long term earnings estimates by 8-10%

  • Although we raise our impairment of trade receivables and lower our mass market GGR forecasts, our FY19 EBITDA and core net profit estimates are little changed due to the high 6M19 VIP win rate. But as VIP win rate ought to normalise at the theoretical average of 2.9% in the long term, we trim our FY20/FY21 EBITDA estimates by 6%/6%.
  • Due to negative operating leverage from relatively fixed depreciation, we cut our FY20/FY21 core net profit estimates by a wider 10%/8%.

Yin Shao Yang Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-08-04
SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.99 DOWN 1.120