GENS registered the first earnings decline in three quarters for 4Q17 largely due to luck factor. However, this is not alarming and in fact, the 4Q17 results were still better than last year. Overall, it gained market share from arch rival Marina Bay Sands while the substantial decline in receivable impairment is a good sign. For now, we keep GENTING’s call unchanged pending its 4Q17 earnings release tomorrow.

GENS’ 4Q17 within expectation. Although earnings declined 21% sequentially, Genting Singapore plc’s (GENS, Not Rated) 4Q17 core profit of SGD148.6m came within expectations with FY17 core income of SGD648.1m making up 95% of consensus estimate. At the adjusted EBITDA level, FY17 earnings of SGD1.15b surged 48%, also within expectations accounting for 100%/97% of house/street’s FY17 EBITDA estimates. It declared a higher 2nd interim DPS of SGD0.02 from SGD0.015 in 2Q17, tallying FY17 DPS to SGD0.035 vs. SGD0.015 in FY16.

But hit by luck factor. 4Q17 core profit contracted 21% QoQ to SGD148.6m as revenue fell 8% largely due to poorer luck factor with rolling chip win dropping to 2.7% from 3.1% in 3Q17. As a result, rolling chip volume fell 2% to c.SGD7.36b but market share for VIP segment improved to 41% from 37% previously. Likewise, market share for nonVIP also increased to 41% from 39% previously. On the other hand, impairment on trade receivables was at new low of SGD4.7m from SGD14.0m previously.

Better volume than last year. 4Q17 core profit leapt 43% YoY from SGD104.2m on the back of a 4% hike in revenue as gaming business rose 5%. In fact, rolling chip volume grew 5% from SGD7.02b in 4Q16 albeit luck factor dipping slightly from 2.8% last year. Furthermore, impairment on trade receivables dropped sharply from SGD38.9m in 4Q16 which also helped to push earnings higher. YTD, FY17 core profit surged 130% to SGD648.1m from SGD281.9m on the back of 7% rise in revenue for the same reasons mentioned above.

Japan the key focus for now. Management indicated that the upcoming new market in Japan is its key focus as it shown keen interest where it raised JPY20b Samurai Bond last October for the preparatory works in anticipation of the new casino in Japan. Meanwhile, management maintains 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 1Q18, especially for the gaming business on CNY effect, 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 RM11.40/share and earnings estimates for GENTING unchanged for now, pending the release of its 4Q17 results tomorrow. Risks to our call include weak business volume and poorer luck factor.

Source: Kenanga Research - 26 Feb 2018