Genting Group’s (GENT) subsidiary, Genting Singapore (GENS) reported a decent set of numbers for 1H19, as core-PATAMI of S$373.8m (-7.3% yoy) was broadly inline with our and consensus estimates, delivering 47% and 52% of 2019E forecast respectively. Although revenue grew by 14% yoy in 2Q, core-PATAMI only grew by 2.0%, due to the higher impairments on its receivables and accelerated depreciation on some of its assets. However, looking ahead, we believe that the outlook will likely to be less rosy due to the heightened trade tensions.

The Odds Continue to Favour the House

Given the exceptional high win rate during the quarter at 3.7% vs 2.1% in 2Q18, management has decided to be more prudent on their receivables and raised the impairment by S$47m during the quarter. Despite the increase in overall impairments, there was not any significant increase in any write-off related to it. Although management has indicated that their current credit policy remains unchanged, we believe management will tighten its credit policy should the current trade tensions continue to intensify. Nevertheless, GENS 2.0 refurbishment exercise has already started to improve its non-gaming offerings.

Higher Levy and Slowing Economy Are Not Good for the Mass

Management guided that its underlying mass market business experience a significant drop in volume during the quarter, which they attributed to the 50% hike in entry levy and the slowing local economy (Marina Bay Sands also reported a decline in mass revenue). We concur with management’s view that local punters will likely get use to the new levy, however the overall mass gaming volume is still likely to remain weak due to the challenging economic outlook both locally and regionally. We believe that the opening and expansion of some regional casinos will steal some of GENS’ both premium mass and VIPs.

Maintain BUY With Unchanged TP of RM9.00

We are keeping our forecast for GENT unchanged, as GENT will be reporting its results by month-end. As such we are maintaining our BUY call and SOTP-based TP at RM9.00. 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 - 5 Aug 2019