Genting Singapore

DBS Group Research on 26 July 2012

MARINA Bay Sands' (MBS) Q2 2012 Ebitda contracted 19 per cent yoy and 30 per cent qoq to US$330 million (S$534 million) as net revenue fell 6 per cent yoy and 18 per cent qoq, due to declines in VIP rolling chip volume (down 6 per cent yoy and 10 per cent qoq) and win rate (2.4 per cent versus Q2 2011's 3.0 per cent and Q1 2012's 3.6 per cent).

If we normalise the luck factor, gross gaming revenue would have risen marginally by one per cent yoy but declined 4 per cent qoq due to the seasonally stronger Chinese New Year in Q1 2012.

The mass market segment continued to strengthen (mass drop up 8 per cent yoy and 3 per cent qoq; slots handle up 15 per cent yoy and flat qoq), contributing 60 per cent of gross gaming revenue (compared to 51 per cent in Q2 2011 and 47 per cent in Q1 2012). Non-gaming revenue held up (17 per cent of net revenue), with hotel occupancy and the average room rate inching up further to 99.1 per cent and US$351.

MBS raised receivables provisions to 14 per cent of VIP gross gaming revenue, compared to 3 per cent in Q2 2011 (the last hike in provisions was in Q4 2011, to 10 per cent), dragging its Ebitda margin down to 48 per cent (Q2 2011: 55 per cent; Q1 2012: 56 per cent).

Macau has also seen VIP gross gaming revenue contracting qoq for the past two quarters. While junkets could be a boost, the timing of more licence awards (including to China-based junkets) remains uncertain.

Genting Singapore's Q2 2012 results will likely be unexciting, but H2 2012 should be stronger with the completion of Resorts World Sentosa's western zone by Q4 2012. We cut 2012-14 earnings forecasts by 9-12 per cent to factor in an 8 per cent contraction in rolling chip volume, lower net win/slot and higher receivables provisions. Downgrade Genting Singapore to "hold" from "buy", with a revised target price of S$1.17 (pegged to Macau sector average of eight times 2013 forecast enterprise value/ Ebitda compared to 12 times previously, given slower growth and multiples contraction).

While partly in the price, there could be further negative knee-jerk reaction from policy risk - the public consultation on proposed amendments to the Casino Control Act will end on Aug 6 and be tabled in Parliament by year-end - and a potential full-blown tussle against Crown Ltd for Echo Entertainment Group, which would require US$1.5 billion-US$3.5 billion to bring Genting Group's 10 per cent stake to 50-100 per cent (compared to Genting Singapore's net cash of US$2 billion, plus US$1.3 billion in annual operating cash flows).

HOLD