Results

• 6MFY16 reported gross revenue of S$1.089bn and core PATAMI of SG$71.9m were below expectations, accounting for only 26.2% and 23% of our and consensus’s estimates.

Deviations

• Lower than expected market volume, poor win rate and extra expenses from the cost rationalization plan (eg. layoff).

Dividends

• None.

Highlights

• For 2QFY16, both revenue (-16.8% yoy & -20.9% qoq) and core PATAMI (-91.1% yoy & -90.6% qoq) contracted due to the slowdown of overall gaming volume (-15% yoy) in Singapore and poor luck factor despite stable market share, after excluding the one-off tax refund of S$102.7m in FY15.

• YTD, both top & bottomline contacted by 10.6% and 47% respectively, mitigated by seasonally stronger performance in 1Q. The poor performance was hit by lower win rate and lower GGR despite stronger visitors’ arrivals.

• Market share remained steady at circa 43% and 42% for VIP and mass market. On theoretical hold-adjusted basis, EBITDA would have declined by 28.8% given the lower volume and higher cost after the cost rationalization plan implementation to save S$30m p.a.

• YTD, non-gaming revenue was up 4.18% yoy. However, it was down 5.48% qoq given stronger performance in 1Q as USS recorded historically highest visitorship.

• On positive note, provision for bad debt has come down to circa S$50m level and management guided similar level of provision going forward given the overall challenging operating environment.

• The development plan on Resorts World Jeju is on track to open by end of 2017 with initial take up rate of 50% on its phase one 161 residential plot.

• We continue to treat the S$2.3bn perpetual securities as cash as management turned slightly positive on the possible legislation approval of gaming bill in Japan.

• Overall, management is generally positive on higher tourist arrivals to support the business but foresee a lacklustre outlook for high rolling gaming segment.

Risks

• 1) Regulatory risk; 2) Further decline in RWS’ market share to MBS; 3) Weaker-than-expected hold percentage in the VIP segment.

Forecasts

• We lower overall market gaming volume assumption and reduce our win rate assumption, our FY16 & FY17 EBITDA forecasts are reduced by 15.6% & 12% respectively.

Rating

HOLD

• Downgrade to HOLD after accounting for contraction of gaming volume given the lacklustre outlook overall.
• Positives – (1) Duopoly industry; and (2) Lower tax rates compared to regional peers.

• Negatives – (1) Highly regulated industry; and (2) Earnings are highly dependable on luck factor and hold rates.

Valuation

• Target price is lowered to S$0.82 is based on FY17 EV/EBITDA multiple of 7.25 times, a 20% discount to peers.

Source: Hong Leong Investment Bank Research - 5 Aug 2016