KUALA LUMPUR (Nov 8): Affin Hwang Investment Bank Bhd has maintained its “Buy” call on Genting Bhd at price RM6.17 with an unchanged target price (TP) of RM9, and said the outlook for the Singapore gaming market is likely to remain challenging, due to slower local mass market and uncertainty in the VIP segment.
In a note today, the research house said Genting’s subsidiary, Genting Singapore (GenS) reported a relatively weak set of numbers for 9M19, as core profit after tax and minority interests (PATAMI) of S$529 million (-14% year-on-year [y-o-y]) was below Affin Hwang’s expectation.
It is still however within the consensus forecast, as it constituted 66% and 75% of respective forecast.
Affin Hwang said the decline in 3Q19 is more severe as PATAMI fell a sharper 27% y-o-y compared to 1H19 in which PATAMI contracted 7.3% y-o-y.
It said the decline in 3Q19 was due to a significant drop in gaming revenue.
“Apart from the drop in mass market volume due to a 50% hike in entry levy for locals since April 19, the gaming revenue was also negatively impacted by the win rate normalising to 2.6%,” the research house said.
It believes that the high win rate in 2Q19 at 3.7% had helped mask the weakness of GenS’s profitability.
Affin Hwang stated that due to challenging economic outlook locally and regionally, the overall gaming revenue is likely to remain weak for both the mass and VIP segment.
The research house also said that Genting’s management guided that they are still interested in both Osaka and Yokohama, and hence will be submitting bids for the request-for-concept for both cities.
Three out of six players have decided to give up on the Osaka bid recently as Yokohama has recently decided to host an IR.
“Management believes that the Osaka IR could still yield an IRR return of 12-15% supported by the 23 million population in the Kansai region.”
“As results for the IR bids will only likely be made known in late 2021, management is confident that they do not need to raise any funding over the next 2 years,” it said.
At 9.43am, Genting gained 1.14% or 7 sen to RM6.24, valuing it at RM24.19 billion.