Results

• Reported 9MFY16 gross revenue of S$1.67bn and core PATAMI of SG$177.7m, which came in above expectations, accounting for only 92.3% and 82.4% of our and consensus’s estimates. However, its EBITDA of SG$542m was in-line with our forecast.

Deviations

• Lower than expected depreciation & amortisation and finance costs as well as higher finance income.

Dividends

• A surprise interim dividend of 1.5 sen was declared, which will go ex on 25 Nov 2016. On top of that a high possibility another round of final dividend during 4Q was shared.

Highlights

• Yoy, revenue was down (-8.6% yoy) due to overall sluggish gaming volume offset by higher win rate but core PATAMI was up (+52.6% yoy) due to better margin after cost rationalization exercise and lower bad debt provisions.

• Qoq, revenue (+20.9%) was buoyed by higher VIP win rate and strong performance from the attractions and hotel business despite a decline in overall VIP volume by circa. 15%. However, core PATAMI grew by 16x due to increased revenue, improved operating margin on the back of cost rationalization initiatives and lower bad debt impairment.

• YTD, both top & bottomline contracted by 9.9% and 13.3% respectively, mitigated by lower bad debt provisions and high win rate in current quarter. Overall gaming volume was still lacklustre as VIP segment continued to be challenging.

• On positive note, provision for bad debt has stabilized at circa S$50m level as previously guided and it may be lower going forward as the receivables is now at all-time low of SG$239.9m compared to SG$772.9m a year ago

• In Korea, the development plan on Resorts World Jeju has faced some setbacks as it was affected by strong typhoon last month resulting in delay of construction work and affecting the sale of residential plot. No significant loss is expected from this event as most financial impact is indemnified. However, overall project delay may be inevitable.

• In Japan, management turned slightly positive on the possible legislation approval of gaming bill, which is expected to be tabled in coming weeks.

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 revenue and our cost structure assumptions; raise our FY16 & FY17 PATAMI forecasts by 18.2% & 13.6%, respectively.

Rating

BUY ↑, TP: SG$0.85 ↑

• Upgrade to BUY as we foresee limited downside from GenS. Share price could be excited by the expected dividend of >3%. We expect stabilized performance from GenS given the cleaner balance sheet and cost rationalization effect with longer prospects on Jeju JV in 2018 and possible expansion in Japan is now coming into light.

Valuation

• Target price is raised to S$0.85, based on higher multiple of EV/EBITDA at 7.5x (was 7.25x), a 20% discount to peers.

Source: Hong Leong Investment Bank Research - 4 Nov 2016