Genting Bhd
(Aug 14, RM7.50)
Maintain buy with a reduced target price of RM9.92 from RM10.92 previously: Genting Singapore’s first half of financial year 2015 (1HFY15) core profit trailed consensus and came in only at 28.7% of consensus full-year estimates. Overall, the dismal 1HFY15 performance can be attributed to the fall in VIP volume and win rate.

The management guided that the market condition would remain challenging for the rest of 2015. As such, it will be cautious in extending credit to VIPs, and will focus more on growing its premium mass and mass markets, which have been growing steadily.

Excluding a tax refund of S$102.7 million (RM297.07 million) and other exceptional items, Genting Singapore’s 1HFY15 adjusted earnings before interest, taxes, depreciation and amortisation (Ebitda) contracted 40.9% year-on-year (y-o-y) to S$421.8 million, driven mainly by the drop in the VIP premium gaming business and rolling win percentage. The gaming revenue contracted 27.2% y-o-y to S$923.2 million, with rolling chip volume declined 11% quarter-on-quarter and the win rate declined to 2.1%.

A weaker contribution from non-gaming divisions (-5.3% y-o-y) also contributed to the decline in Ebitda. We attribute this to the strong Singapore dollar versus regional currencies, which dampened travel sentiment to Universal Studios Singapore. However, we expect the opening of Jurong Hotel in July to shore up the non-gaming contribution in 2HFY15.

The management is cautious about the outlook for the gaming market for the remainder of 2015, due to weak VIP business from China and currency volatility. As such, the company will adopt a cautious approach in granting credit to avoid the building up of bad debt.

On a brighter note, ground preparations and soil works for the Resorts World Jeju development are in progress. Casino legislation is expected to be enacted in early 2016, and Genting Singapore can submit its licence application thereafter.

Given the weak 1HFY15 earnings performance of Genting Singapore and the cautious stance on 2HFY15 outlook, we cut Genting’s FY15 to FY17 earnings by 9% to 19%. Also, we adjust our Singapore dollar/ringgit rate assumptions to 2.7-2.75 from 2.5-2.55 previously. — TA Securities, Aug 14

This article first appeared in digitaledge Daily, on August 17, 2015.