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3Q15 for Genting Singapore Plc. (GENS). Actual vs. Expectation

GENS recorded 3Q15 net profit of SGD66.9m, escalating 9M15 net profit to SGD171.1m which only made up 48% of consensus’ FY15 estimate. Apart from the still weak business volume, the poorer set of result was also due to: (i) higher-than-expected impairment loss on trade receivables up to SGD92.5m, and (ii) impairment loss on available-forsale financial assets of SGD63.4m.

At the adjusted EBITDA level, 9M15 earnings of SGD733.6m accounted for 69%/77% of house/street’s FY15 full-year estimates. The weaker-than-expected results were mainly driven by the drop in casino business volume.

Dividends

No dividend was declared as expected.

Key Results Highlights

3Q15 PAT which surged 437% QoQ to SGD66.9m from SGD12.5m in 2Q15 on the back of stronger gaming revenue. The significant jump in earnings was mainly due to the net exchange gain of RM113.2m relating to investments instead of a loss of RM84.0m recorded in 2Q15 coupled with a better luck factor in VIP segment to 2.8% from 2.1% in 2Q15. However, it was partially offset by the continuous weaker volume in both VIP and mass market.

YoY, 3Q15 PAT declined 47% from SGD127.1m which was attributable to higher-than-expected impairment loss on trade receivables in line with the company’s direction to be more prudent while improving its credit risk. At the same time, 9M15 net profit also dwindled 67% largely due to the same reasons as mentioned above coupled with weaker set of results recorded in 2Q15. 3Q15 rolling chip volume fell sharply by 46.7% from SGD14.3b but with better luck factor from 2.0% to 2.8%. 9M15 rolling chip volume also plunged significantly by 47.7% to SGD25.4b.

RWS saw its market share for VIP falling significantly to 40% in 3Q15 from 47% in 2Q15 and 61% in 3Q14. For non- VIP segment, RWS’ market share also dropped to 40% from 43% in 2Q15. Meanwhile, the total daily average visitor registered a strong QoQ improvement to 21,000 from 18,000 in 2Q15 and 18,700 in 3Q14. However, the hotel occupancy rate slid to 88% from 93% but higher average room rate of SGD380 from SGD375. Both hotel occupancy and average room rate also fell from 95% and SGD408 in 3Q14.

Outlook

Management guided that challenging prospects for gaming business, especially the high-roller segment from China while the weakening regional currencies could impact its ASEAN clientele as well. However, we could expect better revenue number with the contribution from Jurong Hotel. Meanwhile, impairment on trade receivables should continue for the next one or two quarters and will decline subsequently once it is fully extended to better credit quality customers.

Change to Forecasts

No change to our GENTING’s FY15-17E EBITDA estimates for GENS.

Rating

NOT RATED for GENS, OUTPERFORM for GENTING.

Valuation

We are keeping our price target for GENTING unchanged at RM8.36/share, based on a 30% holding company discount to its SoP pending the release of its 3Q15 results later this month-end.

Risks

The risks to GENS include a weaker-than-expected business volume and poorer luck factor.

Source: Kenanga Research - 13 Nov 2015