This article first appeared in The Edge Financial Daily on August 7, 2018
Genting Bhd
(Aug 6, RM8.69)
Retain outperform with an unchanged target price of RM11.50: Genting Singapore plc, a 52.7% subsidiary of Genting Bhd, reported a net profit of S$177.6 million (RM724.61 million) for the second quarter of financial year 2018 (2QFY18), posting a year-on-year (y-o-y) growth of 23.9%. The results were in line with our and consensus full-year forecasts for Genting Singapore. The stronger earnings were mainly driven by the redemption of perpetual capital securities in the second half of FY17. Excluding the impact of the securities, earnings were marginally higher with a growth of 3% y-o-y.
Group revenue for 2QFY18 was down 6% y-o-y mainly due to lower gaming revenue, which accounted for 72% of total revenue. VIP rolling volume showed encouraging y-o-y growth, but luck factor was poor with the win rate falling by 0.6 percentage point to 2.6%. Also, competition in the mass market is getting more intense due to the growing regional gaming industry in Cambodia and the Philippines. Meanwhile, the hotel division continued to outperform with an average occupancy rate of over 91%.
With the recalibration of its credit policy and commission structure for the VIP gaming business, impairment on trade receivables continued to improve. In 2QFY18, it registered S$0.5 million of impairment, compared with S$14.7 million in 2QFY17.
In the medium to long term, catalysts for Genting include Genting Singapore’s possible venture into the Japanese gaming market, expansion of Resorts World New York and an integrated resort in Las Vegas as well as resilient earnings from Genting Singapore. Last month, Japan enacted a controversial law allowing the construction of three integrated resorts to help boost the country’s tourism sector. The new legislation will kick off a bidding process for regional casino players to partake in the right to host the integrated resorts, but this is only expected to take place in the second half of 2019, following the publication of guidelines by the gaming board.
We retain our “outperform” call on Genting as we believe that its valuation of 15 times forward earnings remains attractive. — PublicInvest Research, Aug 6