Genting Berhad’s (GENT) 53%-owned subsidiary, Genting Singapore (GENS), achieved a core profit of S$539.6mn (-12.4% YoY) for 9H19 which accounted for 76.6% of consensus full-year forecasts. Overall 3Q19 results disappointment was due to challenging VIP market and the rise in casino entry levy. However, we maintain our Buy recommendation on GENT with an unchanged target price of RM6.87 in view of the easing US-China trade tension to bode well for casino operations.

GENS’ 3Q19 financial and briefing highlights

• 3Q19 revenue and adjusted EBITDA declined by 6.7% and 12.8% YoY to S$596.1mn and S$278.0mn, respectively. The earnings disappointment was due to challenging VIP market as well as the rise in casino entry levy. Based on hold-normalised basis, the group would have generated an adjusted EBITDA of S$295mn, a decline of 7% against the same quarter last year.

• For 3Q19, GENS’ gross gaming revenue market share was 37% (vs 40% in 3Q18) with a rolling volume market share of 47% with a lower hold percentage of 2.6%. Looking forward, the group would remain cautious on the VIP segment in terms of credit facilities. Note that GENS has prudently impaired $S25mn (+94% YoY) trade receivables in 3Q19 to comply with a more stringent accounting and credit policies.

• The S$4.5bn mega expansion plan, a.k.a. RWS 2.0, is progress well with construction works expected to begin in 2H20. First attraction would be The Adventure Dining Playhouse, which is scheduled to open in end-2020. Thereafter, there will be new attractions and business venues unveiled every year over the next 5 years. The two new luxury hotels with 1,100 keys are expected to complete by 2024-2025.

• In early-June, Osaka prefecture announced seven operator groups expressed their intent to bid for an Osaka integrated resort (IR) license. Later in September, the race was down to three candidates. So, Osaka’s IR bid will be a triple-threat match for Genting Singapore to take on MGM Resorts International (MGM) and Galaxy Entertainment Group (Galaxy). According to management, selection of winner would likely be in 3Q2020.

• Besides Osaka, management indicated that the company is now preparing for Yokohama’s request-for-concept, which was just opened in October and will be closed on 23 December 2020. The selection of winner will likely be in end-3Q20 or 4Q20.

Impact

• No change to our Genting’s FY19/20/21 forecasts.

Valuation

• We maintain Genting’s SOP valuation at RM6.87/share and reiterate our Buy recommendation. Like other casino operators, Genting would benefit from the ease of US-China trade tension, which would bode well for casino operations.

Source: TA Research - 8 Nov 2019