GENS rebounded in the 3Q18 on better luck factor and business volume, which took its 9M18 core profit up by 23% to SGD614.4m that beat expectations. With volume improvements in nearly two years, we believe the recovery is sustainable. For now, we keep GENTING’s call unchanged pending its 3Q18 results release later this month. In addition, the recent sell-down triggered by gaming tax hike provides a good buying opportunity.

GENS’ 9M18 came above expectations. At 79% of consensus’ FY18 estimates, Genting Singapore plc (GENS, Not Rated)’s 9M18 core profit of RM614.4m beat expectations which we believe was due to better-than-expected business volume. At the adjusted EBITDA level, 9M18 earnings of RM943.6m make up 79%/76% of house/street’s FY18 EBITDA estimates. There was no dividend declared in 3Q18, which was not unexpected as it pays half-yearly dividends.

Earnings led by volume and improved luck. 3Q18 core profit rebounded 18% sequentially to SGD210.4m from SGD177.6m on the back of 14% hike in revenue, due to higher VIP rolling volume as well as better luck factor. Although market share for VIP fell to 42% from 50%, the higher rolling chip volume of 14% and chip win of 2.9% from 2.6% helped to push earnings higher. We saw a similar trend in its arch rival Marina Bay Sand (MBS) as well in its recently announced results. As a result, 3Q18 adjusted EBITDA leapt 20% QoQ to SGD318.8m from SGD265.9m previously. Meanwhile, impairment on trade receivables remained low at SGD12.9m from SGD0.4m previously.

The recovery looks sustainable. 3Q18 core profit rose 13% YoY from SGD187.8m despite revenue only inching up 1% from SGD629.9m in 3Q17, largely due to improved VIP volume with market share for this segment expanding to 42% from 37% in last year. YTD, 9M18 core earnings jumped 23% to SGD614.4m from SGD499.5m in 9M17 as revenue grew 3% over the year. At adjusted EBITDA level, 9M18 earnings grew 5% to SGD943.6m from SGD896.1m previously. This was because of significant improvement in business volume with rolling chip volume rising c.23% over the year.

All eyes on Japan. With the Japanese Diet on 20 July enacted the Integrated Resorts (IR) Implementation Bill, GENS has registered companies in Osaka and Yokohama and raised JPY20b of Samurai Bond last October. Accordingly to news reports, there are 17 international IR operators indicating their interest to contest for one of the three IR license in Japan, the latest being Casinos Austria International. For now, it is still too early to gauge on the potential outcome of the bidding process which expected to take place in 2H19. Meanwhile, management maintains its less pessimistic tone over the Singaporean market while business volume has seen improvement for nearly two years and should be sustainable.

Maintain GENTING’s call for now. We are keeping our OUTPERFORM call, price target of RM8.20/share, which is based on 3-year mean discount of 38.5% to SoP of RM13.35, and earnings estimates for GENTING unchanged for now, pending the release of its 3Q18 results later this month. Risks to our call include weak business volume and poorer luck factor.

Source: Kenanga Research - 09 Nov 2018