Results

• 1H17 core PATAMI of SG$311.8m was above expectations, accounting for 64.0% and 57.9% of HLIB and consensus FY estimates, respectively.

Deviations

• Higher-than-expected EBITDA margin with lower impairment of receivables, coupled with lower effective tax rate.

Dividends

• Declared a dividend of 1.5 cents, which is within our full expectation of 3.0 cents for FY17.

Highlights

• QoQ: 2Q17 revenue was up by 1.6% due to better win rate and market share. Core PATAMI improved by 5.2% due to higher revenue and better margin.
• YoY: 2Q17 revenue grew by 24.0% attributable to higher gaming volume and market share as well as higher visitors. As a result, core PATAMI increased by 25x buoyed by improved margin due to cost efficiency initiatives and significant lower bad debt provision.
• YTD: 1H17 core PATAMI improved by 315.4% on the back of higher revenue (+12.0%) resulting from higher market share and better win rate as well as higher margin.
• We understand that there is no immediate plan to refinance the SG$2.3bn debt after the imminent redemptions of both perpetual securities on 12 Sep 2017 and 18 Oct 2017.
• On the major refurbishment of RWS, management is currently in discussion with government and more details will only be shared towards the end of the year.
• On Japan, management continues to believe that the implementation bill for Japan casino is scheduled to be tabled in Oct/Nov judging from recent progress of framework finalization. Hence, bidding invitation may start in mid-FY18 should all legislations and approvals are being passed on time.
• Despite of the satisfactory numbers, management remains cautious on the outlook especially the VIP markets due to the tight capital control by China authority, currency strength as compared to RM, uncertainties in regional political and economic landscape.

Risks

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

Forecasts

• We impute higher margin assumptions and lower effective tax rate into our model, leading to higher FY17/FY18/FY19 EBITDA by 12%/9%/11%, respectively.

Rating

HOLD ↔ , TP: SG$1.21 (↑ )

• Maintain HOLD given the minimal organic growth outlook due to stiff competition and absence of high rollers despite the margin expansion and stable dividend policy. Possible expansion in Japan would be the upside catalyst which has yet to be factored in.

Valuation

• TP is raised to SG$1.21 (from SG$1.11) based on unchanged EV/EBITDA multiple of 11x pegging to peers’ multiple .

Source: Hong Leong Investment Bank Research - 03 Aug 2017