- VIP volumes may worsen before recovering. Mass-market GGR may ease on sliding property prices. Cut EBITDA by 1- 16%.
- Maintain HOLD. TP down 9% to SGD1.13, now on 9x FY15 EV/EBITDA (from 10x), in view of slower earnings growth.
- Still, valuations not demanding against peers. May also venture into Japan soon.
Over the last two weeks, we spoke to many parties on GENS’s prospects. 2H14 VIP volumes are likely to fall markedly YoY, no thanks to tight credit conditions in China. However, we believe volumes will recover in 2015 as the Chinese government has begun to ease credit conditions. What we are a tad worried about is the continuous slide in Singapore’s property prices. This could hurt mass-market gross gaming revenue (GGR) in the next two years.
What’s Our View
We cut FY14E-16E EBITDA by 1%/13%/16% which leads to a larger 2%/22%/26% reduction in earnings, due to negative operating leverage from depreciation and perpetual securities distribution. We believe EBITDA is a better gauge of the FCF required to finance new ventures and hence, a better valuation metric for GENS. We lower TP from SGD1.24 on 10x FY14E EV/EBITDA to SGD1.13 on 9x FY15E EV/EBITDA, in view of its slower earnings growth.
Still, maintain HOLD on its prospective entry into new gaming jurisdictions. Japan may open its casino industry to its locals while South Korea may open more casinos to its own before year-end. Recall that GENS is keen to venture into Japan and is already exposed to South Korea via 50%-owned Resorts World Jeju (RWJ). RWJ is awaiting construction permits.
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