GenS’ FY18 core net profit which grew 18.3% to SGD766.7m was in-line with our expectations. The group’s 4Q18 GGR demonstrated commendable growth (+7%QoQ; +27.4%YoY) mainly led by higher win rate and higher market share for VIP. However, 4Q18 core earnings were dragged by higher impairment on trade receivable which resulted in lower EBITDA margin (-13.7ppt QoQ; -2.2ppt YoY). Maintain BUY with unchanged TP of SGD1.43, based on unchanged EV/EBITDA multiple of 11x.

Within expectations. FY18 revenue of SGD2.5bn translated into a core net profit of SGD766.7m, accounting for 99% of HLIB and consensus full year forecasts, respectively.

Dividend. Proposed a final dividend of 2.0 cents (4Q17: 2.0 cents), bringing FY18 total dividend to 3.5 cents.

QoQ. Revenue improved by 4.1% sequentially due to higher spending per visitor. However it was dragged by lower VIP volume despite higher win rate. Core earnings of SGD152.3m were 27.9% lower due to poorer margin resulting from higher impairment of trade receivable.

YoY. 4Q18 revenue of SGD664.8m grew by 14.6% backed by the gain in VIP market share (+10ppts YoY) coupled with better win rate and higher foot traffic on attraction business. The group’s GGR grew by 27% YoY led by continued strength in VIP and decent mass volume. Despite higher revenue, core earnings only surged by 2.5% due to higher depreciation and amortisation as the group has shortened the useful life of certain assets.

YTD. Revenue grew by 6.1% 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 18.3% thanks to the higher revenue, and the absence of interest to perpetual securities holders. Despite challenging market environment the group managed to maintain the rolling chip volume and has continued its uptrend and ascended by 32% YoY.

Outlook. Management previously guided on potential redevelopment plan on its property in Sentosa, which we think will act as an additional catalyst to the group. However, at this juncture, the group has not spilled any details regarding the redevelopment. We are hopeful that more details will be shared by 1H19.

Japan. The group continues to pay close attention on the possible destinations of IRs especially in Osaka. Osaka had announced that the city will start searching for its integrated resort (IR) partner this spring. GenS mentioned that the request for concept timeline will be sometime in May and the request for proposal will be in September this year.

Forecast. Unchanged.

Maintain BUY on GenS with unchanged TP of SGD1.43 based on FY19 unchanged EV/EBITDA multiple of 11x. Despite the challenging operating environment, we believe that the group’s lean cost structure will continue to benefit GenS. Besides, possible venture in Japan and its redevelopment plan are another huge upswing factors in the near term.

Source: Hong Leong Investment Bank Research - 22 Feb 2019