Genting Singapore plc
(Oct 29, S$2.17)
Maintain outperform at S$2.16 with fair value of S$2.55: LVS, the operator of Marina Bay Sands (MBS) reported stellar 3QFY10 results, with gross gaming revenue (GGR) of US$414.5 million (RM1.28 billion), or US$4.5 million per day, adjusted property earnings before interest, taxes, depreciation and amortisation (Ebitda) of US$241.6 million or US$2.6 million per day and Ebitda margin of 49.7%.

This is a significant improvement from the 65 days in 2QFY10, which saw GGR of US$2.9 million per day, Ebitda of US$1.4 million per day and Ebitda margin of 43.7%.

Despite the significant improvement seen in MBS, we note that on a daily basis, MBS' GGR is still below Resorts World Sentosa's (RWS) 2QFY10 GGR of S$9.2 million (RM22.05 million) per day. MBS' Ebitda margin of 49.7%, though impressive, was also below RWS' 2Q Ebitda margin of 58%.

The highlights of our conference call included: (i) MBS' GGR per day grew to US$8.4 million on Oct 10; (ii) Ebitda has grown 21% in October from September;  (iii) Locals made up 38% of visitors to the integrated resort, with overseas visitors making up the rest; (iv) average daily traffic was between 22,000 and 24,000 per day in 3Q, but this has grown to 25,000 per day; (v) VIP share of revenue was 57% to 60%; (vi) commissions/rebates are about 1.2% or 1.3% in 3Q10; (vii) the total number of tables is about 610 (with 110 for VIPs and 500 mass); (viii) still no junket approvals yet; (ix) hotel occupancy was about 68.2%, up from 54.9% in 2Q10; and (x) LVS is aggressively targeting Japan as its next market, estimating that operator selection for two casino sites in Japan would come through in 1H12.

We note that the annualised industry GGR is higher than our estimate of S$4.5 billion for 2010, while RWS' market share estimate is also higher than our projected 58%.

Risks include: (i) regulatory risk - with regards to casino licence and junket operators licences and commission structure; (ii) competition risk - in view of the liberalisation of the Asian casino industry and revitalisation of previously halted construction plans in Macau; (iii) operational risk - relating to RWS, which could end up with higher-than-expected operating costs; and (iv) external risk - relating to economic stability and recovery as well as the risk of a serious contagious disease outbreak.

We prefer to remain conservative for now. However, we raise our fair value to S$2.55 (from S$2.40), based on blended average of EV/Ebitda, revised to updated regional average of 13.5 x FY11 (from 12x FY11), and DCF. We reiterate our "outperform" recommendation. - RHB Research, Oct 29


This article appeared in The Edge Financial Daily, November 1, 2010.