Results
Genting Singapore’s (GenS) FY15 core PATAMI of SG$370.1m came in below HLIB forecast at 92% but above consensus forecasts at 131.5%.
Deviations
Lower than expected GGR and hold rate; higher than expected effective tax rate and dividend.
Dividends
Declared a dividend of 15 cent, a surprise addition of 5 cent compared to previous year, representing a yield of 2.13%.
Highlights
Full year revenue and core PATAMI declined by 16.1% and 21.2%, respectively, affected by the slowdown gaming sector across the region and flat tourism data. In terms of GGR in Singapore, our numbers show a 15% decline yoy and GenS has been losing market share to MBS on VIP segment due to the competitive advantages of MBS.
The shift of focus to mass and premium mass market has also affected the performance of VIP segment. The lower than theoretical hold rate at 2.35% was also doing no favour. Meanwhile, mass market was relatively stable with a singledigit decline while slot revenue improved slightly yoy basis. It is worth noting that the theoretical normalised hold adjusted EBITDA estimated at SG$1.091bn (-19% yoy).
Non-gaming revenue was flat yoy attributable to lower average room rate and occupancy rate but mitigated by the contribution from the newly opened Jurong Hotel. Management is positive on increased visitors to Universal Studio in 4Q where income stream continues to diversify.
Construction works in Resorts World Jeju is progressing as scheduled with commencement of works on hotels, retail and entertainment. An additional capex of US$250 (at 50% share) for the construction of residential plot is advanced (1518 units of villas and condos), encouraged by overwhelming interest from prospective buyers.
The sharp decline of net profit by 70% in FY15 was overdone by the losses on EIs and bad debt provisions, where some were non-cash items; excluding the EIs, core PATAMI declined by only 21% while cash flow remained strong as ever.
A new normal in 2016, we expect earnings to be less volatile with low base of 2015 and cleaner balance sheet free from the derivative financial assets and lower bad debt provisions.
Risks
1) Regulatory risk; 2) Further decline in RWS’ market share to MBS; 3) Weaker-than-expected hold percentage in the VIP segment; and 4) Failure in casino license renewal.
Forecasts
Incorporating latest FY15 numbers and metrics, we adjust downward our earnings forecast for FY16 and F17 by 14%.
Rating
BUY
Positives
(1) Duopoly industry; and (2) Lower tax rates compared to regional peers.
Negatives
(1) Highly regulated industry; and (2) Earnings are highly dependable on luck factor and hold rates.
Valuation
Maintain BUY recommendation with lower target price of SG$0.90 based on EV/EBITDA of 7.1x, a 15% discount to peers given the share price has fell below fundamental level.
Source: Hong Leong Investment Bank Research - 19 Feb 2016
http://klse.i3investor.com/blogs/hleresearch/91499.jsp
