GENS presented yet another poor set of results with core earnings of SGD6.2m in 2Q16, the lowest since 4Q10, attributable to declining high-roller volume and luck factor. This is not unexpected given the poor numbers reported earlier by its sole rival, Marina Bay Sands, and Macau gaming industry data. Outlook remains cautious; thus, the company has started cost-cutting measures, which are expected to result in SGD30m savings a year. We keep GENTING’s call unchanged for now pending its 2Q16 earnings release this month end.

GENS’ 2Q16 below. Genting Singapore plc (GENS, Not Rated) reported yet another poor set of results in 2Q16 with core net profit plunging 91% QoQ to SGD6.2m, the lowest since 4Q10, no thanks to continued decline in casino business volume coupled with unfavorable luck factor. The 1H16 core earnings of SGD71.0m makes up only 22% of consensus FY16 estimates. At the adjusted EBITDA level, 1H16 earnings of SGD308.6m were 33%/36% of house/street’s FY16 EBITDA estimates. No dividend was declared as expected.

Sequential results took a dip. 2Q16 core profit plummeted 91% QoQ to SGD6.2m from SGD65.7m in 1Q16 principally due to decline in business volume and luck factor. This brought 2Q16 revenue and adjusted EBITDA lower by 21% and 40% to SGD480.9m and SGD116.1m, respectively. VIP rolling chip volume contracted 26% to SGD6.84b with market share improving to 43% from 40% previously. In fact, the total market VIP volume in Singapore plunged 26% to SGD15.91b from SGD21.61b in the preceding quarter. Rolling chip win deteriorated to 1.7% from 2.9% in 1Q16. On mass market, the non-rolling chip fell 7% to SGD912m with market share maintained at 42% while chip win fell slightly to 28% from 29% previously.

Same decline trend YoY. On a YoY comparison, 2Q16 core profit plunged 96% from SGD171.7m with top line declining 17% from SGD578.1m in 2Q15, due to the same reasons mentioned above on lower business volume and luck factor. VIP rolling chip volume declined 40% from SGD11.34b with market share falling from 48% in 2Q15 while rolling chip win fell to 1.7% from 2.5%. Likewise, 1H16 core profit plummeted 70% to SGD71.9m from SGD238.3m in 1H15 with revenue falling 11% to SGD1.09b from SGD1.22b. With the falling earnings, management had started cost cutting initiatives in 2Q16 with cost incurred spreading to 3Q16. While management did not disclose the cost involved in 2Q16, the quantum incurred in 2Q16 was much less than the expected annual cost savings of SGD30m.

Outlook remains challenging. Management remains focused in growing mass and premium mass markets, which are more stable segments, given the challenging prospects for the high-roller segment which emphasized on qualitative factors rather than quantitative ones. This was reflected in the improvement in provisioning of bad debts. On the other hand, the costcutting measures will help to generate savings of SGD30m a year. On the overseas front, construction of the Resort World Jeju is progressing well with the sales of residential plot having started in April with encouraging take-up of 50% with buyers locally and from mainland China. Work is on track for a soft opening of early phase of the integrated resort in 4Q17. However, for Japan, management indicated there is lacked of clarity of liberalization of gaming industry there.

Maintain GENTING’s call for now. We are keeping our price target for GENTING unchanged at RM9.23/share, based on a 20% holding company discount to its SoP valuation of RM11.54/share pending the release of its 2Q16 results by month-end. Risks to GENS include continuous weak business volume and poorer luck factor.

Source: Kenanga Research - 5 Aug 2016