Despite weaker sequential earnings by 6%, GENS’ 3QFY19 core profit of SGD155.2m is on track to meet expectations. The weaker results were driven by lower luck factor but VIP business volume inched up slightly by 1%. Meanwhile, nongaming numbers were solid with top-line leaping 20% on high visitation. For now, we keep GENTING’s call unchanged pending its 3QFY19 results release later end of the month.

GENS’ 3QFY19 results inline. At 75% of consensus’ FY19 estimate, Genting Singapore Ltd (GENS, Not Rated)’s 9MFY19 core profit of SGD529.0m matched expectation. At the adjusted EBITDA level, 9MFY19 earnings of SGD902.1m accounted for 76% of house/street’s FY19 EBITDA estimates. No dividend was declared in 3QFY19, as expected as it usually pays half-yearly dividends.

Weaker sequential earnings on lower luck factor. 3QFY19 core profit fell 6% QoQ to SGD155.2m from SGD166.0m in 2QFY19 on the back of 6% decline in revenue to SGD596.1m. This is primarily due to weaker luck factor, although business volume improved, as rolling chip win deteriorated to 2.6% from 3.7% previously, while rolling chip volume inched slightly by 1% with market share unchanged at 47%. However, non-gaming numbers were solid with revenue rising 20% as daily average visitation jumped to 23,000 from 20,000 with hotel occupancy rising to 94% from 85% previously. On the other hand, an 88% decline in interest expense to SGD1.1m from SGD9.1m, on the back of full repayment of SGD680m borrowings in April, also helped to push earnings higher. Meanwhile, impairment on trade receivables fell to SGD25.0m 3QFY19 from SGD47.3m in 2QFY19.

Yearly results impacted by higher depreciation. Besides unfavourable luck factor with rolling chip win decreasing to 2.6% from 2.9% but higher market share for VIP at 47% from 42%, higher depreciation which jumped 41% to SGD101.3m from SGD72.1m pulled down 3QFY19 core earnings by 27% YoY from SGD211.2m. The surge in depreciation charges since 4QFY18 was due to written-down or recognised assets that can be demolished or rebuilt after the government approved its Expansion 2.0. And, the higher depreciation charges are expected to remain for the next five quarters. YTD, 3QFY19 core profit fell 14% to SGD529.0m from SGD614.4m despite flattish revenue at SGD1.87b, mainly due to the abovementioned high depreciation by 39%. Meanwhile, the lower interest expense due to the abovementioned debt repayment, by 28% helped to mitigate the fall in earnings.

Caution on VIP business remains. Although seeing growth in foreign visitors, management remains cautious on the VIP business, especially for mainland Chinese visitors over the uncertain economic environment but it remains optimistic on the mass markets. Meanwhile, for the new market in Japan, GENS has submitted Request-for-Concept (RFC) for Osaka while the dateline for Request-for-Proposal (RFP) should be in the next two months and the winner will be known by 3QCY20. In addition, it is also preparing RFC for Yokohama with RFP set in 2QCY20 before making the final result in end-3QCY20 or early- 4QCY20.

Maintain GENTING’s call for now. We are keeping our OUTPERFORM call, price target of RM6.75/share, which is based on 3-year mean discount of 42.4% to SoP of RM11.69, and earnings estimates for GENTING unchanged for now, pending the release of its 3QFY19 results later this month-end. Risks to our call on GENTING include weak business volume and poorer luck factor.

Source: Kenanga Research - 8 Nov 2019