This article first appeared in The Edge Financial Daily on November 11, 2019

Genting Bhd
(Nov 8, RM6.21)
Maintain buy with an unchanged target price (TP) of RM9: Genting Group’s subsidiary Genting Singapore (GenS) reported a relatively weak set of numbers for the nine months of financial year 2019 (9MFY19), as its core profit after tax and minority interests (Patami) of S$529 million (RM1.61 billion) (-14% year-on-year [y-o-y]) was below our expectations but within consensus forecast, as it constituted 66% and 75% of the respective forecasts. Apart from the weaker gaming revenue (-9.3% y-o-y), the overall profitability was also bogged down by higher depreciation charges. We believe that the outlook for the Singapore gaming market is likely to remain challenging, due to a slower local mass market and uncertainty in the VIP segment.

Unlike the first half of FY19, in which Patami only contracted 7.3% y-o-y, the decline in the third quarter of FY19 was more severe, as Patami fell a sharper 27% y-o-y, due to a significant drop in gaming revenue. Apart from the drop in the mass market volume due to a 50% hike in the entry levy for locals since April 19, the gaming revenue was also negatively impacted by the win rate normalising to 2.6%. We believe that the high win rate in 2Q at 3.7% had helped mask the weakness of GenS’ profitability. With the challenging economic outlook both locally and regionally, the overall gaming volume is likely to remain weak for both the mass and VIP segments, in our view.

The management said it is still interested in both Osaka and Yokohama, Japan, hence it will submit bids for the request for concept for both cities. Some players have decided to give up on the Osaka bid recently (three out of six players), as Yokohama city has recently indicated it is keen to host an integrated resort. We are keeping our forecasts for Genting until the release of its results by month-end. Hence, we maintain our “buy” call and sum-of-total part based on the TP at RM9. The key downside risks to our call would be: i) an unfavourable luck factor; and ii) fewer-than-expected high-roller arrivals. — Affin Hwang Capital, Nov 8