GENS presented improved results in 1Q16, which was partly attributed to luck factor but VIP business volume declined, despite gaining market share, as total industry volume fell. With now focus switching to mass and premium mass segments, hopefully this could help to mitigate falling VIP volume. Thus, outlook for GENS remains tough. We keep GENTING’s call unchanged for now pending its 1Q16 earnings release this month end.

GENS’ 1Q16 below. Although Genting Singapore Plc’s (GENS) 1Q16 core net profit improved by 5% QoQ to SGD65.7m from SGD62.5m in 4Q15, the reported results were below consensus estimates, which made up 19% of FY16 estimates. This was due to VIP business volume remained weak albeit some recovery. At the adjusted EBITDA level, 1Q16 earnings of SGD192.5m were 20%/21% of house/street’s FY16 EBITDA estimates. No dividend was declared as expected.

Strong QoQ recovery… Sequentially, 1Q16 recovered by 5%, which was partly attributed to better luck of 2.9% from 2.1% in the preceding quarter. As such, revenue from gaming leapt 20% to SGD450.5m from SGD374.0m, which helped to boost group revenue by 11% to SGD608.0m. Having said that, VIP rolling chip volume fell slightly by 1% to SGD8.64b, despite its VIP market share improved slightly to 40% from 38%, as the total market VIP volume in Singapore fell 6% over the quarter. Meanwhile, its market share for mass segment also improved slightly to 42% from 41% previously. For non-gaming segment, Universal Studios Singapore posted its best first quarter performance since opening in terms of revenue and attendance as the total visitor arrivals hit 1.6m from 1.2m recorded in 4Q15.

But fell slightly YoY. 1Q16 core profit dipped by 1% YoY from SGD66.6m as revenue fell 5% from SGD639.2m a year ago. This was due to sharp decline in business volume, which saw its rolling chip volume plunged 33% from SGD12.80b to SGD8.64b as its market share dipped to 40% from 48% previously despite luck factor improved to 2.9% from 2.5% in 1Q15. This also marks its 6th consecutive decline in VIP market share to its sole rival, Marina Bay Sands. On the other hand, Resorts World Sentosa’s market share for mass segment improved slightly YoY to 42% from 41% previously.

Outlook remains challenging. Management remains focus in growing mass and premiums mass markets, which are more stable segments, given the challenging prospects for the high-roller segment which emphasise on qualitative factors than quantitative ones. This was reflected in the improvement in provisioning of bad debts. On the overseas front, construction of the Resort World Jeju is progressing well with the sales of residential plot having started in April. This is on track for a soft opening of Phase of integrated resort in 4Q17. However, management indicated that there is lacked of clarity of liberalization of gaming industry in Japan.

Maintain GENTING’s call for now. We are keeping our price target for GENTING unchanged at RM10.04/share, based on a 20% holding company discount to its SoP valuation of RM12.54/share pending the release of its 1Q16 results next Tuesday. Risks to GENS include weakerthan- expected business volume and poorer luck factor. 

Source: Kenanga Research - 16 May 2016