This article first appeared in The Edge Financial Daily on August 6, 2019

Genting Bhd
(Aug 5, RM6.64)
Maintain outperform with a higher target price (TP) of RM9.25: Genting Singapore, a 52.7% subsidiary of Genting Bhd, reported a 5.4% decline in second quarter of 2019 (2QFY19) net profit to S$168.4 million, mainly due to higher depreciation and amortisation costs. At the adjusted earnings before interest, taxes, depreciation and amortisation (Ebitda) level, the first half of financial year 2019 (1HFY19) results came in within our estimates.

Despite a slower mass gaming business, Resort World Sentosa (RWS) was able to deliver satisfactory results due to a higher rolling win percentage in the very important person (VIP) segment. As a result, 2QFY19 adjusted Ebitda increased 10.7% year-on-year.

About its plans for the Japan Integrated Resort (IR), Genting Singapore has fully met the application guidelines and qualifying criteria of the Osaka Request-for-Concept. We believe Genting Singapore stands a good chance in securing one of the three IRs in Japan, backed by its track record in operating a successful large-scale IR in Singapore. We reiterate our “outperform” rating on Genting with a revised sum-of-parts (SoP)-based TP of RM9.25 from RM8.80 previously.

The gaming segment, making up 69% of the group’s revenue, posted an increase of 22% on a higher rolling win percentage in the VIP rolling segment. However, due to the increase in VIP business, the impairment on gaming receivables rose to S$47.3 million from under S$1 million in 2QFY18.

The underlying mass gaming business experienced a decline in the quarter due to a slowing local economy and poor consumer confidence. Owing to a 43% jump in depreciation and amortisation costs, Genting Singapore’s net profit fell 5.2%.

Genting Singapore is embarking on implementing its S$4.5 billion expansion plan. The new development will include expanding Universal Studios Singapore by adding two new theme parks, expanding the SEA Aquarium and converting the existing theatre into a new Adventure Dining Playhouse, scheduled for reopening in 2021. With this plan, RWS’ gross floor area is expected to increase 50%.

We revised our SoP-based TP from RM8.80 to RM9.25 due to the revision in our TP for Genting Malaysia Bhd after its partnership with the Fox Group resumed. In the medium term, the key catalyst for Genting is the possibility of Genting Singapore securing one of the three IR licences in Japan. Trading at only 14 times forward earnings, we see value in Genting and hence maintained our “outperform” rating on the stock. — PublicInvest Research, Aug 5