A solid quarter at GENS as it had largely undergone lower impairment and the severe decline in gaming volume had somewhat stabilised. It could have bottomed as the arch-rival Marina Bay Sands has also been experiencing a recovery in VIP business volume in the past three quarters. On the other hand, the legalisation of casinos in Japan should be a price catalyst for gaming stocks like GENS, which has indicated keen interest in participating. For now, we keep GENTING’s call unchanged pending its 1Q17 earnings release later this month.

GENS’ 1Q17 above. Genting Singapore plc (GENS, Not Rated) reported 1Q17 earnings, which beat expectations with core earnings rising 46% QoQ to SGD152.0m which made up 34% of consensus’ FY17 estimates. This was attributed to strong VIP and premium mass business as the total gaming revenue leapt 9% QoQ as well as lower impairment of trade receivables. At the adjusted EBITDA level, 1Q17 earnings of SGD283.2m also topped expectations, which accounted for 34%/30% of house/street’s FY17 EBITDA estimates. No dividend was declared as expected.

A solid quarter. With revenue growing 5% on the back of higher gaming business mentioned above, 1Q17 core earnings surged by 46% sequentially to SGD152.0m, the most profitable quarter since 2Q15. Rolling chip win improved slightly to 2.9% from 2.8% in 4Q16 but rolling chip volume fell 4% to SGD6.71b with market share falling to 35% from 37% previously. Meanwhile, the non-VIP volume also fell 14% to SGD727m. Nonetheless, a reduction in impairment of trade receivable to SGD15.0m from SGD38.9m in 4Q16 helped to improve bottom-line. As such, 1Q17 adjusted EBTIDA rose 21% to SGD283.2m from SGD233.7m in 4Q17.

But mainly helped by lower impairment. While top-line fell 4% as gaming business has yet to recover to last year’s level, 1Q17 core earnings soared 131% YoY to SGD152.0m from SGD65.7m in 1Q16. This was largely due to a sharp decline in impairment of trade receivables to SGD15.0m from SGD92.4m last year. In fact, 1Q17 rolling chip volume of SGD6.71b was 22% lower than of SGD8.64b registered in 1Q16 while non-VIP volume fell 26% to SGD727m from SGD981m previously. Market share for VIP segment also fell to 35% from 40% previously. Overall, adjusted EBITDA leapt 47% YoY to SGD283.2m from SGD192.5m in 1Q16.

Better outlook? Management continued to be less pessimistic since the preceding quarter as the casino operator started to produce improved results. Although the business volume is still far from recovery from the peak, the recent quarters showed it is likely bottomed. Meanwhile, focus remains in growing the mass and premium mass markets. On the regulatory development in Japan, management believes that the bidding process of new casino license is likely to be early next year.

Maintain GENTING’s call for now. We are keeping our OUTPERFORM call, price target RM10.19/share and estimates for GENTING unchanged for now, pending the release of its 1Q17 results later this month. Risks to our GENTING’s call include weak business volume and poorer luck factor.

Source: Kenanga Research - 15 May 2017