GenS’ 3Q19 core net profit of SGD155.2m (-6.5% QoQ, -26.5% YoY) was below our expectations largely due to higher than expected depreciation costs coupled with our expectation of 3Q to perform seasonally stronger. No dividends were declared. We gather that there are approximately 3 operators left in the run for the Osaka bid (MGM Resorts, GenS, and Galaxy Entertainment) from the initial 7 operators which registered. We lower our earnings by -6.1%/- 7.7%/-6.8% as we impute higher depreciation expense. Maintain BUY with a lower TP of SGD1.14 (from SGD1.17) based on a FY19 EV/EBITDA multiple of 9x .

Below expectations. GenS reported 3QFY19 core PATMI of SGD155.2m (-6.5% QoQ, -26.5% YoY), which brings the 9MFY19 sum to SGD529m (-13.9% YoY), representing 73% and 75.5% of our and consensus full year forecast, respectively. We deem this below our expectations largely due to higher than expected depreciation costs coupled with our expectation of 3Q to perform seasonally stronger. No dividends were declared.

QoQ. Core earnings came in at SGD155.2m (-6.5%) in tandem with a decrease in revenue (-6.4%). The drop in revenue was largely due to a decrease in VIP luck factor (2.6% vs 3.7%), slightly cushioned by improvements in non-gaming revenue.

YoY/YTD. Core earnings fell -26.5%/-13.9% to SGD155.2m/SGD529m despite revenue only decreasing -6.7%/-0.1% largely due to an increase in impairment on trade receivables and higher depreciation. We note that the higher impairment is attributed to a change in accounting treatment, requiring management taking a prudent stance towards the increase in VIP volume. Higher depreciation can be attributed to the shortened useful life of certain assets in preparation for RWS2.0 and is expected to taper off gradually in FY21.

Japan IR. Genting Singapore has submitted the documents required for stage 1 of request for concept (RFC) to the city officials in Osaka. We gather that there are approximately 3 operators left in the run for the Osaka bid (MGM Resorts, GenS, and Galaxy Entertainment) from the initial 7 operators which registered. The request for proposal (RFP) is indicated to be issued within the next couple of months, with the selectin a winner to take place sometime in 2H20.

Resort World Singapore (RWS) 2.0. The SGD4.5bn expansion plan of RWS is on track and is expected to be expanded progressively starting from the two new theme park attractions in 2021/22 followed by the additional 1100 hotel rooms in 2024/25. The additional 500sqm of new gaming space is likely to be the last phase of the RWS2.0. Management anticipates paying for the land by end-FY19, thus allowing construction to begin in mid-FY20, at earliest. Capex wise, management guided that the first heavy item will be c.SGD1bn for land acquisition which we expect to take place soon.

Forecast. We lower our earnings by -6.1%/-7.7%/-6.8% as we impute higher depreciation expense.

Maintain BUY with a lower TP of SGD1.14 (from SGD1.17) based on a FY19 EV/EBITDA multiple of 9x, as we impute the capex for the land acquisition. The recent plunge was due to the gaming tax hike in Singapore; however at this rate, we feel that it is oversold and feel that the risk to reward had turned appealing at current levels. The possible venture in Japan may also act as an upswing factor in the near-term.

Source: Hong Leong Investment Bank Research - 8 Nov 2019