Hit by Higher Entry Levy

Genting Group’s (GENT) subsidiary, Genting Singapore (GENS) reported a relatively weak set of numbers for 9M19, as core-PATAMI of S$529m (-14% yoy) was below our expectations but within consensus forecast, as it constituted 66% and 75% of respective forecasts. Apart from weaker gaming revenue (-9.3% yoy), the overall profitability was also bogged down by higher depreciation charges. We believe that the outlook for the Singapore gaming market is likely to remain challenging, due to slower local mass market and uncertainty in the VIP segment.

Normalising of Odd Reflects the Challenging Market

Unlike 1H19, in which PATAMI had only contracted 7.3% yoy, the decline in 3Q19 is more severe, as PATAMI fell a sharper 27% yoy, due to a significant drop in gaming revenue. Apart from the drop in mass market volume due to a 50% hike in entry levy for locals since April 19, the gaming revenue was also negatively impacted by the win rate normalising to 2.6%. We believe that the high win rate in 2Q19 at 3.7% had helped mask the weakness of GENS’s profitability. With the challenging economic outlook both locally and regionally, overall gaming volume is likely to remain weak for both the mass and VIP segment, in our view.

Still in the Game for Japan IR Bid

Management guided that they are still interested in both Osaka and Yokohama, hence they will be submitting bids for the RFC for both cities. Some players have decided to give up on the Osaka bid recently (3 out of the 6 players), as Yokohama city has recently indicated they are keen to host an IR. Management believes that the Osaka IR could still yield an IRR return of 12-15% supported by the 23m population in the Kansai region. As results for the IR bids will only likely be made known in late 2021, management is confident that they do not need to raise any funding over the next 2 years.

Maintain BUY With Unchanged TP of RM9.00

We are keeping our forecast for GENT until the release of 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 - 8 Nov 2019