Results

• Reported FY16 gross revenue of SG$2.23bn and core PATAMI of SG$285.1m which came in above expectations, accounting for 111.8% and 123.9% of HLIB and consensus estimates.

Deviations

• Lower than expected depreciation & amortisation and effective tax rate.

Dividends

• Proposed a final dividend of 1.5 sen, bringing YTD dividend to 3.0 sen, which yields 3.1% based on current price.

Highlights

• Yoy , 4Q16 revenue was up by 1.9% due to higher win rate for premium business despite lower gaming volume. Core PATAMI improved by 66.9% due to improved margin after cost rationalization exercise and lower bad debt provisions.

• Qoq, revenue contracted by 4.1% attributable to few visitors and spending per visitor for non-gaming segments while gaming segment was slightly lower (-2.2%) due to lower volume and win rate. Core PATAMI was rather flat (-1.5%) buoyed by improved cost structure despite lower topline.

• YTD , topline contracted by 7.2% due to overall lower gaming volume (estimated circa -13% yoy) and lower visitors spending. However, it was mitigated by lower bad debt provisions and more stable win rate compared to FY15.

• On positive note, provision for bad debt came in at SG$39m, which is below the guidance of S$50m level and it is likely to trend lower given the continued downtrend in receivables at SG$197.7m compared to SG$646.4m a year ago.

• In terms of dividend policy, management’s guidance of a stable dividend of 3.0 sen going forward is signalling a stable performance after two struggling years.

• Following the passing of gaming bill legislation management in Japan, management is following very closely on the development of enacting the execution bill. GenS is financially well-placed to contest when bidding is opened regardless of the discussed locations (Osaka & Yokohama).

• Apart from Japan, management shared they are coming up with a plan to reinvest in RWS as part of the medium-term growth strategy which is expected to be unveiled by end of the year, subjected to approvals from the government.

Risks

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

Forecasts

• We incorporate latest assumptions, leading to higher FY17/FY18 EBITDA forecasts by 1.9%/1.2% and PATAMI forecasts by 16.5%/14.6%.

Rating

• HOLD ↔ , TP: SG$1.01

• Maintain HOLD despite the strong results and stable dividend policy going forward as share price has rallied by 31% since Nov. We foresee lacklustre outlook for the overall gaming sector in Singapore with stiff competitions and absence of high rollers. Possible expansion in Japan remains an excitement but it is still an early bet, in our view.

Valuation

• TP is raised to S$1.01 (from S$0.92) given the stable outlook and generous dividend policy, based on higher multiple of EV/EBITDA at 9x (from 8.5x), at an unchanged 20% discount to peers.

Source: Hong Leong Investment Bank Research - 23 Feb 2017