We believe Genting Group’s (GENT) subsidiary, Genting Singapore (GENS SP; S$0.89) reported a relatively good set of numbers for 2018 - PATAMI came in at S$755m (+18% yoy), which is inline with our expectations but fall short of consensus, delivering 98% and 94% of our respective forecasts. The overall results would have been better, if not for the higher depreciation and impairments during the 4Q.

No Change to Credit Policy Despite Higher Impairments

Although GENS recorded a significantly higher impairment on its trade receivables for 4Q at $36m (up from $13m in 3Q), management has guided that the increase should be view as a blip and would normalize in the coming quarters. We believe that management would continue with its credit policy, as it has helped GENS to regain some market share in the VIP segment. The trade receivables still at a manageable level at $144m, relative to its peak of $1,209m in 1Q14.

Accelerating Depreciation as Redevelopment Is Coming Soon

Management has also taken a prudent approach to determine the useful life of its assets, as Resort World Sentosa (RWS) will be undergoing a major redevelopment soon. As a result, the increase in depreciation was substantial in the 4Q18, amounting to $104m (+57.7% qoq; +40.3% yoy) from $66m in 3Q18. We believe that the depreciation is likely to maintain at this elevated level for the next 2 years, as management is expecting the announce details of the redevelopment by 1H19.

No Change in Dividend Policy Pending Outcome of Japan IR Bid

Despite the better performance, DPS payout for the year is maintained at 3.50sen, as management is conserving its cash in anticipation of the Japan IR bid. Management is hoping to provide better clarity on the total investment its plans to invest in Japan by 3Q19. Only be then, management would review its dividend payout.

Maintain BUY With An Unchanged TP of RM10.90

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 RM10.90. No change to our GENT forecasts, pending the release of its results by end of the month.

Source: Affin Hwang Research - 22 Feb 2019