GENS posted yet another solid quarter, for the second consecutive quarter with core earnings rising 5% sequentially to the strongest quarterly performance in two years at SGD160m. Beside substantial reduction in impairment, the severe decline in gaming volume has somewhat stabilised as it could have bottomed out as Marina Bay Sands has been experiencing a recovery in VIP business volume in the past year. For now, we keep GENTING’s call unchanged pending its 2Q17 earnings release later this month.

GENS’ 2Q17 above. Genting Singapore plc (GENS, Not Rated) reported 2Q17 earnings, which beat expectations with core earnings rising 5% QoQ to SGD159.8m totalling 1H17 core profit to SGD311.8m which accounted for 58% of consensus’ FY17 estimates. This was attributed to strong VIP and premium mass businesses as the total gaming revenue rose 2% QoQ and 33% YoY as well as lower impairment on trade receivables by 2% QoQ and 73% YoY to SGD14.7m. At the adjusted EBITDA level, 1H17 earnings of SGD576.0m also topped expectations, which accounted for 68%/55% of house/street’s FY17 EBITDA estimates. It declared 1st interim NDPS of SGD0.015/share and a final NDPS is expected in 4Q17.

Another solid quarter. With revenue improving 2% as gaming revenue rose 2%, 2Q17 core earnings grew 5% QoQ to RM159.8m; the strongest quarterly earnings since 2Q15. Rolling chip win inched up to 3.0% from 2.9% previously but rolling chip volume fell 6% to c.SGD4.5b while market share slid to 34% from 35% in 1Q17. However, non-VIP volume jumped 22% to SGD633m which we believe was led by premium mass market. Meanwhile, impairment on trade receivable was reduced by 2% to SGD14.7m from SGD15.0m previously. As such, adjusted EBITDA improved 3% to SGD292.7m from SGD283.2m in 1Q17.

Yearly results helped by luck and lower impairment. 2Q17 core earnings saw a big jump from merely SGD6.2m last year which was on the back of a 24% leap in revenue, as 2Q16 earnings were hit hard by the extreme poor luck factor of 1.7% at VIP segment, albeit VIP volume fell 12% from c.SGD5.1b. In addition, impairment on trade receivables plunged 73% from SGD53.6m previously. Likewise, 1H17 core earnings surged 3-fold to SGD311.8m from SGD71.9m in 1H16 due to the normalisation of luck factor mentioned above. Besides, impairment on trade receivables declined 80% to SGD29.7m from SGD146.0m in 1H17.

Better outlook? Management continued to be less pessimistic, a stand taken since three quarters ago as the casino operator started to produce improved results. Although the business volume is still far from recovery from the peak, the recent quarters indicated that it has likely bottomed out. Meanwhile, focus remains in growing the mass and premium mass markets. On the regulatory development in Japan, there is little update but management indicted that it is interested in two of the potential sites, namely Osaka and Yokohama.

Maintain GENTING’s call for now. We are keeping our OUTPERFORM call, price target RM11.30/share and estimates for GENTING unchanged for now, pending the release of its 2Q17 results later this month. Risks to our call include weak business volume and poorer luck factor.

Source: Kenanga Research - 3 Aug 2017