Genting Singapore - RHB Invest 2019-08-05: High Win Rate Offsets Decline In Mass Gaming


Genting Singapore - High Win Rate Offsets Decline In Mass Gaming

  • Maintain NEUTRAL with a lower Target Price of SGD0.97, from SGD1.02, 8% upside plus 4% yield.
  • GENTING SINGAPORE LIMITED (SGX:G13)'s 2Q19 result met our expectations. 2Q19 adjusted EBITDA grew 11% y-o-y to SGD294m bringing 1H19 adjusted EBITDA to SGD624m, which represents 50% of our estimates. This was attributed to stronger VIP volumes and a higher win rate which helped offset the significant decline in mass gaming.
  • Moving forward, we expect adjusted EBITDA to soften as win rate normalises and volume eases.

Held up by good luck!

  • Gaming revenue grew 22% y-o-y to SGD441m in 2Q19. According to management, the 50% increase in casino levy for Singaporeans and permanent residents had a significant impact on mass gaming business during the quarter. This was however offset by a high rolling win rate of 3.7% and growth in VIP volumes which we estimated to be at c.11% y-o-y and c.15% q-o-q.
  • On a hold-normalised basis, adjusted EBITDA would be 22% lower, at SGD230m.

Precautionary impairment was higher-than-expected.

  • Impairment of gaming receivables was significantly higher in 2Q19 at SGD47.3m (2Q18: SGD0.5m and 1Q19: SGD11.1m). This was a surprise to us as the group has taken a cautious stance on extending credit to VIPs.
  • Management highlighted the impairment was precautionary, and none of it has been written off yet. We believe the group has taken the opportunity to be prudent on the back of a decent set of results.

Positive news flow on Japan IR would be a catalyst to share price.

  • According to management, the submission for Phase 2 request-for-proposal is due on September 2019. Therefore, theoretically, the earliest Osaka could select an operator is in 2Q20.

The Board approved an interim 1H19 dividend of 1.5 cents/share.

  • We expect total dividend for the year to remain unchanged at 3.5 cents/share.

Cautious on outlook.

  • Management expect mass volumes to take more than a quarter or two to recover to pre-levy increase levels.
  • We cut our adjusted EBITDA by 10%/7%/3% for FY19-21F as we lower our mass volume assumption and normalise the win rate. This lowers our Target Price to SGD0.97 from SGD1.02, based on a 7x FY19 EV/EBITDA.
  • Maintain NEUTRAL.
  • This report marks the transfer of coverage to Juliana Cai.

Juliana Cai RHB Securities Research | https://www.rhbinvest.com.sg/ 2019-08-05
SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 0.97 DOWN 1.020