Genting Singapore (GENS SP, not rated), a 53% owned subsidiary of Genting Berhad, announced a good set of 9MFY17 results, as its adjusted EBITDA at SGD896m (+65% yoy) came in above our and consensus expectations, at 80-81% of respective full-year forecasts. The robust yoy performance was driven by a strong recovery in its VIP segment, as management continues to extend credit to its customers. Contributing 45% to Genting Berhad’s earnings, we reiterate our BUY call with an unchanged TP of RM12.77.

Credit Continuing to Flow Helps Drive Stronger Growth

Management has indicated they are still comfortable with the current receivables level, and will continue to extend credit to its VIP players, which they expect will be the main earnings driver over the next few quarters. Although the account receivables were lower qoq in 3QFY17, this was mainly due to several write-backs as GENS received several favourable court decisions recently, rather than a change in credit policy. Credit expansion was mainly for new customers, indicating that GENS’ strategy to transform itself into a lifestyle destination is starting to bear fruit.

Dividend Policy Remains Unchanged Pending SGD1bn Refurbishment

There will be no change in its dividend policy despite the better performance, as management has indicated that they will keep the full-year DPS at SGD3.0 cents as they conserve capital in anticipation of major refurbishment work for Resort World Singapore, which could cost as much as SGD1bn. The recent Samurai bond offering of JPY20bn/USD180m (at 0.669% per annum) raised funds to facilitate the expenses related to the Integrated Resort (IR) bid, and more importantly to gauge Japan’s capitalmarket appetite for funding an IR project, in our opinion.

Maintain BUY and 12-month TP of RM12.77

The better-than-expected results will likely be a positive catalyst for Genting Berhad’s share price. Each SGD0.01 rise in GENS’ share price would increase GENT’s share price by RM0.04, based on our estimates. We reiterate our BUY call on GENT and SOTP-based 12-month TP of RM12.77, as the current valuation is undemanding given that the current holding co discount is above the +1stdev of its historical average, providing a cheaper alternative for investors to buy into the upside of its subsidiaries.

Source: Affin Hwang Research - 7 Nov 2017