GenS’ 9M18 core net profit of SGD614m (+23% YoY) was above expectations, mainly due to higher-than-expected EBITDA margin. Both higher QoQ and YoY results were achieved on the back of higher volume of business coupled with better margin. We expect steady results moving forward and flattish 4Q GGR, while costs are well-contained. Maintain BUY with slightly higher TP of SGD1.43 (from SGD1.42), based on unchanged EV/EBITDA multiple of 11x; after taking into account the upward earnings adjustment of 3%/1%/1% for FY18/19/20.

Above expectations. 9M18 revenue of SGD1.9bn translated into a core net profit of SGD614.4m, accounting for 82.1% and 79.1% of HLIB and consensus full year forecasts, respectively. The stronger-than-expected earnings were mainly due to higher EBITDA margin resulting from productivity improvement initiatives and lower effective tax rate.

Dividend. None as dividend is usually declared on semi-annual basis.

QoQ. Revenue improved by 14.1% sequentially due to higher volume of business and better win rate. Core earnings of SGD211.2m were 29.7% higher on the back of revenue and better margin resulting from productivity improvement initiatives.

YoY. 3Q18 revenue of SGD639.1m was marginally higher by 1.5% given the higher volume of VIP drop (+13%), albeit at a lower win rate. Core earnings, however, improved marginally 12.5% on the back improved margin resulting from cost efficiency initiatives and lower impairment on trade receivables.

YTD. Revenue grew by 3.4% attributable to higher volume across all business segments; driven by improved market share especially for VIPs following the strategy of loosening the credit facility. Core earnings were up 23.0% thanks to the improved EBITDA margin (50.3% vs 49.4%) driven by leaner cost structure and lower impairment of bad debt.

Outlook. We expect 4Q GGR to be rather flat YoY as the growth from the improved market share on VIP will be offset by a normalized win rate (high win rate in 4Q17) as well as the weaker mass volume. However, steady results should continue to prevail as the costs are well-contained with manageable level of receivables. Meanwhile, there is no clarity on the refurbishment plan on RWS as it is still under negotiation with the local authority at the moment.

Japan. GenS is watching very closely on the on the possible destinations of IRs in both Osaka and Yokohama with the local team now in Japan to understand the market and prepare for the bid, which is expected to be around end 2019/ early 2020.

Forecast. We imputed higher EBITDA margin to reflect the lower impairment on trade receivables and lower effective tax rate, resulting in higher FY18/19/20 PATAMI of 3%/1%/1%.

Maintain BUY on GenS with slightly higher TP of SGD1.43 (from SGD1.42) based on unchanged EV/EBITDA multiple of 11x; after taking into account the upward adjustment of earnings. We believe the stable operating environment and lean cost structure will continue to benefit GenS. Besides, possible venture in Japan is another huge upswing factor in the near term.

Source: Hong Leong Investment Bank Research - 9 Nov 2018