Genting Singapore - Maybank Kim Eng 2019-11-08: Mind The Mass-Market Gap


Genting Singapore - Mind The Mass-Market Gap

Maintain HOLD and SGD0.99 EV/EBITDA-based Target Price

  • GENTING SINGAPORE (SGX:G13)'s 3Q19/9M19 results exceeded our expectations due to higher-than-expected VIP volume and lower-than-expected VIP rebates. That said, the y-o-y fall in the high-margin mass-market GGR accelerated.
  • While we raise our EBITDA estimates by 7-8% pa, we fear it may be fleeting if the y-o-y fall in mass-market GGR accelerates.
  • We ascribe a lower target FY20E EV/EBITDA of 7.0x (8.0x previously) to also account for the risk of higher taxes going forward. This keeps our Target Price at SGD0.99. See Genting Singapore Share Price; Genting Singapore Target Price; Genting Singapore Dividend History.

A tad above our expectations on better VIP market

  • Genting Singapore's 3Q19 core net profit of SGD155.2m (-27% y-o-y, -7% q-o-q) brought 9M19 core net profit to SGD529m (-14% y-o-y), which was ahead/within of our/consensus expectation at 81%/76% of our/consensus FY estimate. See Genting Singapore Announcements; Genting Singapore Latest News.
  • The outperformance was due to:-
    1. higher-than-expected 9M19 VIP volume of SGD25.1b (-3% y-o-y), which reached 87% of our FY estimate; and
    2. lower-than-expected 9M19 VIP rebate rate, which we estimate at 1.3% (MKE forecast: 1.5%).
  • Note that Macau 9M19 VIP GGR fell 17% y-o-y.

High margin mass market weak though

  • Notwithstanding better VIP, we estimate 3Q19 mass-market GGR fell ~10% y-o-y (2Q19: -~5% y-o-y). The 50% hike in casino entry levy for Singaporean citizens and permanent residents (SCPR) starting 4 Apr 2019 continues to weigh on mass-market GGR.
  • As more SCPRs’ SGD2,000 annual passes expire, those SCPRs will have to pay a much higher SGD3,000 if they wish to renew their annual passes. We fear many will not, exerting more pressure on mass-market GGR going forward.

Raise EBITDA estimates by 7-8% but may be fleeting

  • We raise our FY19/FY20/FY21 EBITDA estimates by 7%/8%/7% due to higher VIP volume and lower VIP rebate rates (raise our FY19/FY20/FY21 EPS estimates by a narrower 6%/6%/5% on higher depreciation). That said, these gains may be eroded if the y-o-y fall in mass-market GGR accelerates as its EBITDA margin of ~60% is 2-3x that of VIP.
  • We forecast FY19/FY20 mass-market GGR to ease 7%/6%; If the actual decline is a lot wider, we may cut our earnings estimates markedly going forward.
  • See Genting Singapore Analyst Reports.

Other updates

  • SGD4.5b expansion of Resorts World Sentosa (RWS2.0) is progressing well and construction will commence in 2H20.
  • Genting Singapore has fully responded to the Osaka Request For Concepts (RFC). It expects Osaka to issue Requests For Proposals (RFP) in two months and to announce the winner in 3Q20.
  • Genting Singapore is also responding to the Yokohama RFC, which is due by 23 Dec 2019. It expects Yokohama to issue RFPs in 2Q20 and to announce the winner in 3Q20/4Q20.

Yin Shao Yang Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-11-08
SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.990 SAME 0.990