GENS posted another set of improved results, for the 3rd consecutive quarter with core earnings rising 6% sequentially to yet another strongest quarterly performance since 2Q15 at SGD188m. This is not surprising as its arch rival Marina Bay Sands also posted strong recovery in gaming volume. Thus, we believe game volume has somewhat bottomed out as both players are seeing recovery in the past one year. For now, we keep GENTING’s call unchanged pending its 3Q17 earnings release later this month.

GENS’ 3Q17 beat estimates. Genting Singapore plc (GENS, Not Rated) reported yet another improved results in 3Q17, which beat expectations with core earnings rising 17% sequentially to SGD187.8m totalling 9M17 core profit to SGD499.5m which accounted for 83% of consensus’ FY17 estimates. This was attributed to strong gaming business volumes as the total gaming revenue rose 2% QoQ and 11% YoY to SGD452.1m while impairment on trade receivables remained low at SGD14.0m against SGD14.7m and SGD50.2m in 2Q17 and 3Q16, respectively. At the adjusted EBITDA level, 9M17 earnings of SGD896.1m which surged 65% also topped expectations accounting for 90%/80% house/street’s FY17 EBITDA estimates.

Another solid quarter. With revenue rising 6% as gaming revenue grew 2%, 3Q17 core earnings leapt 17% sequentially to SGD187.8m; another strongest quarterly earnings since 2Q15. Rolling chip win inched up to 3.1% from 3.0% previously with rolling chip volume surging 24% to c.SGD5.5b while market share improved to 37% from 34% 2Q17. However, non-VIP volume declined 5% to SGD603m. Meanwhile, impairment on trade receivable was reduced slightly to SGD14.0m from SGD14.7m previously. As such, adjusted EBITDA rose 9% to SGD320.1m from SGD292.7m in 1Q17.

Yearly results helped by business volume and lower impairment. 3Q17 core earnings jumped 77% from RM105.8m on the back of 8% hike in revenue as gaming business grew by 11%. In fact, VIP volume leapt by 25% from SGD4.45b albeit better luck factor in 3Q17 at 3.3%. In addition, lower impairment on trade receivables of SGD14.0m from SGD50.2m also helped to boost bottom-line. YTD, 9M17 core earnings surged 181% to SGD499.5m from SGD177.7m last year on the back of 9% hike in revenue for the same reasons mentioned above.

Confident in Japan’s bid? GENS had just raised JPY20b Samurai Bond in Japan in October following the establishment of a branch there. Management has indicated that the funds are earmarked for preparatory works in anticipation of the new casino in Japan. This shows that it has keen interest in this new market. With the election just over, management expects the government to table the bill next summer. Meanwhile, management continues its less pessimistic tone over the Singaporean market while business volume has seen improvement in the past one year. As it is now in the seasonally strong 4Q17, especially for the non-gaming business on year-end holiday, earnings are likely to improve further in the coming quarter.

Maintain GENTING’s call for now. We are keeping our OUTPERFORM call, price target of RM10.95/share and earnings estimates for GENTING unchanged for now, pending the release of its 3Q17 results later this month. On the other hand, the recent weakness in GENTING’s share price offers a good buying opportunity. Risks to our call include weak business volume and poorer luck factor.

Source: Kenanga Research - 7 Nov 2017