GENS posted weaker sequential results in 2Q18, but which is not alarming as it was mainly caused by unfavourable luck factor but business volume continue upward trend, which is key factor to earnings sustainability. Besides, RWS now holds equal market share for VIP segment with arch rival MBS and with its low receivable impairment, these are good signs. For now, we keep GENTING’s call unchanged pending its 2Q18 results release later this month.

GENS’ 2Q18 within expectations. Although earnings declined 32% sequentially, Genting Singapore plc’s (GENS, Not Rated) 2Q18 core profit of SGD162.8m came within expectations, with 1H18 core income of SGD403.1m making up 51% of consensus FY18 estimate. At the adjusted EBITDA level, 1H18 earnings of SGD624.8m which leapt 29%, also within expectations, accounting for 52%/50% of house/street’s FY18 EBITDA estimates. It declared an 2Q18,rim DPS of SGD0.015 in 2Q18 which is the same as 2Q17.

Poorer luck dragged earnings lower. 2Q18 core profit fell 32% sequentially to SGD162.8m from SGD240.3m while revenue declined 17% over the quarter. This was due to poor luck factor, which was similarly faced by its arch rival Marina Bay Sand (MBS), as Resort World Sentosa (RWS) saw its rolling chip win fell to 2.6% in 2Q18 from 3.2% in 1Q18. As such, 2Q18 adjusted EBITDA contracted 26% to SGD265.9m from SGD358.9m. On a hold-normalised basis, the adjusted EBITDA could have been c.SGD293m. On the other hand, market share for VIP segment improved slightly to 50% from 49% previously while market share for non-VIP segment also inched up to 36% from 35% previously. Meanwhile, impairment on trade receivables was at new low of SGD0.4m from SGD9.1.0m previously.

But better volume than last year. Despite revenue dipping 6%, 2Q18 core profit inched up 2% from SGD159.8m previously. Overall, although with poorer luck at 2.6% from 3.0% previously, rolling chip volume grew strongly by c.31%. Furthermore, impairment on trade receivables dropped sharply from SGD14.7m to RM0.4m which also helped to push earnings higher. YTD, 1H18 core profit leapt 29% to SGD403.1m from SGD311.8m on the back of 4% hike in revenue as business volume improved significantly with rolling chip volume rising 43% over the year.

All eyes on Japan. With the Japanese Diet on 20 July enacting the Integrated Resorts (IR) Implementation Bill, GENS has so far registered companies in Osaka and Yokohama and raised JPY20b of Samurai Bond last October. This shows its keen interest in the new market. The Bill has confirmed three sites of IR with Osaka and Yokohama highly anticipated as one of the three. For now, it is still too early to gauge on the potential outcome of the bidding process. Meanwhile, management maintains its less pessimistic tone over the Singaporean market while business volume has seen improvement in the past 1.5 years and should be sustainable.

Maintain GENTING’s call for now. We are keeping our OUTPERFORM call, price target of RM10.85/share and earnings estimates for GENTING unchanged for now, pending the release of its 2Q18 results later this month. Risks to our call include weak business volume and poorer luck factor.

Source: Kenanga Research - 6 Aug 2018