Genting Group’s (GENT) subsidiary, Genting Singapore (GENS SP; S$0.89) reported a relatively good set of numbers for 9M18 - PATAMI came in at S$605m (+29% yoy) driven by revenue growth in its VIP operation. As 3Q seasonally is a slower quarter, the numbers came in above our and consensus expectations, delivering 80% and 78% of our respective forecasts. Management has also attributed the improvement in EBITDA margin to productivity improvements and more moderate impairment charges on trade receivables.

Credit Policy Will Continue to Drive Growth

GENS’ +10% qoq gaming revenue growth was driven mainly by the VIP market, as GENS continued to extend credit to attract more players, which resulted in its trade receivables increasing by more than 27% qoq in 3Q18. However, management guided that they will continue with their current credit policy strategy, as they are still comfortable at current levels. We believe that with the continuation of the current policy, GENS will be able to expand its contribution from the VIP segment.

Strong Non-gaming Revenue Growth Is a Positive Surprise

The strong increase in GENS’ non-gaming revenue growth (+9% yoy; +26% qoq) is a positive surprise to us, which management attributed to stronger visitation growth at its Universal Studio Theme Park and the recent entry-fee price hike for S.E.A. Aquarium. We believe that the growth of the non-gaming revenue is a good indicator that GENS continues to maintain its attractiveness in the mass and premium mass markets, which have been facing competition from new casinos from the Indochina region.

Maintain BUY With An Unchanged TP of RM11.70

The strong results performance by GENS could be a positive catalyst for GENT’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 RM11.70. No change to our GENT forecasts, pending the release of its results by end of the month.

Risks to our call

The key downside risks to our call would be: i) unfavourable luck factor, and ii) fewer-than-expected high-roller arrivals.

Source: Affin Hwang Research - 9 Nov 2018