GENS reported a satisfactory set of 1Q19 results, which saw earnings rising 36% sequentially to SGD207.8m thanks to lower provisioning and depreciation charges. However, business volume declined in view of economic uncertainty. As such, management is cautious with its high roller market but remains optimistic with mass market. For now, we keep GENTING’s call unchanged pending its 1Q19 results release this month end.

GENS’ 1Q19 matched expectations. At 28% of consensus’ FY19 estimates, Genting Singapore Ltd (GENS, Not Rated)’s 1Q19 core profit of SGD207.8m came in within expectations as 1Q is seasonally a strong quarter for CNY effect. At the adjusted EBITDA level, 1Q19 earnings of SGD329.7b accounted for 28% of house/street’s FY19 EBITDA estimates. No dividend was declared in 1Q19, as expected (it usually pays half-yearly dividends).

Strong sequential earnings on lower opex… Despite revenue declining 4% to SGD640.4m, 1Q19 core profit jumped 36% QoQ to SGD207.8m due to lower opex which could be due to lower provisioning as well as the decline in depreciation charges by 11% or SGD11.7m. The 4% contraction in top-line could be due to slightly poorer luck factor as the rolling chip win fell to 3.3% from 3.4% despite higher VIP volume while market share deteriorated to 44% from 47%. Meanwhile, impairment on trade receivables dropped to SGD11.1m in 1Q19 from SGD35.6m in 4Q18.

…but lower business volume capped yearly results. 1Q19 core earnings fell 14% YoY from SGD240.3m on the back of a 5% dip in revenue. This was due to c.21% decline in rolling chip volume, which saw its market share falling to 44% from 49% previously. On the flipside, rolling chip win improved slightly to 3.3% from 3.2% previously. On the other hand, impairment on trade receivable remained low at SGD11.1m from SGD9.1m in 1Q18.

Challenging outlook on geopolitics. Management is cautious on the VIP business, especially for mainland Chinese visitors over the uncertain economic environment, but it remains optimistic on the mass market. Meanwhile, for the new market in Japan, the city of Osaka has already started the Request-for-Concept (RFC) process for the integrated resorts of which GENS is now in the midst of preparation. Management believes that timeline for RFC should be by September before the Request-for-Proposal’s dateline in Nov/Dec. For now, it is still too early to gauge the potential outcome of the bidding process.

Maintain GENTING’s call for now. We are keeping our OUTPERFORM call, price target of RM7.95/share, which is based on 3-year mean discount of 38.5% to SoP of RM12.93, and earnings estimates for GENTING unchanged for now, pending the release of its 1Q19 results later this month-end. Risks to our call include weak business volume and poorer luck factor.

Source: Kenanga Research - 10 May 2019