Friday, 15 August 2014

Genting Singapore

Kim Eng on 15 Aug 2014

  • 2Q14 profit in line. VIP volume fell sharply QoQ. Bad debts at new high.
  • Expect continued weakness due to credit tightening in China.
  • Estimates little changed. Maintain HOLD and SOTP-based TP of SGD1.24 based on 10x FY14E EV/EBITDA for RWS.
In line
2Q14 core net profit of SGD145.7m accounted for 24% of our full- year estimate. Although 6M14 core net profit of SGD358.9m accounted for 59%, we expect weak future quarters due to credit tightening in China. We estimate 2Q14 VIP volume fell 19% QoQ, with bad debts hitting a new high of SGD81.6m or 15% of VIP GGR.

Unsustainable; no firm progress elsewhere
While Resorts World Sentosa (RWS) maintained its share of VIP volume at a high 60% in 2Q14, we think this is unsustainable. In the past, neither operator in Singapore held substantially higher share than the other for long. With bad debts at new highs, we believe GENS will extend less credit to Chinese VIPs and may cede VIP volume share to Marina Bay Sands (MBS).
We fine tuned our earnings by -1% to +1% while maintaining our SOTP-based TP of SGD1.24 based on 10x FY14E EV/EBITDA for RWS. While we believe downside risk is limited, we find no convincing reason to buy GENS. Japan has yet to pass its Promotion Bill for casinos and Resorts World Jeju has yet to break ground. Our top pick in the sector is Genting Malaysia (GENM MK, BUY, TP: MYR4.70).

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