Genting Singapore

OCBC on 13 Aug 2012

Genting Singapore (GS) posted 2Q12 revenue of S$702.2m, down 3% YoY and 11% QoQ, where overall revenue was affected by marginally lower casino business volume. As a result, reported net profit slipped 31% YoY and 21% QoQ to S$166.7m. For 1H12, revenue slipped 9% to S$1489.2m, meeting 42% of our FY12 forecast, while reported net profit fell 31% to S$378.2m, or 38% of our full-year estimate. As guided, its EBITDA margin was also affected by the start-up costs associated with the West Zone (Marine Life Park is expected to have a soft launch towards the end of 2012). But management believes that the adjusted EBITDA margin of ~45% is the worst it will see. However, in view of the more depressed economic outlook, we pare our DCF-based fair value from S$1.97 to S$1.66; but we maintain our BUY rating.

1H12 results just slightly under
Genting Singapore (GS) posted 2Q12 revenue of S$702.2m, down 3% YoY and 11% QoQ, where overall revenue was affected by marginally lower casino business volume, which also translated into lower adjusted EBITDA of S$311.0m (down 10% YoY and 17% QoQ). As a result, reported net profit slipped 31% YoY and 21% QoQ to S$166.7m. For 1H12, revenue slipped 9% to S$1489.2m, meeting 42% of our FY12 forecast, while reported net profit fell 31% to S$378.2m, or 38% of our full-year estimate.

Expects adjusted EBITDA margin to remain above 45%
As guided, its EBITDA margin was also affected by the start-up costs associated with the West Zone (Marine Life Park is expected to have a soft launch towards the end of 2012). However, management believes that the adjusted EBITDA margin of ~45% is the worst it will see and is confident that it will improve by next year, staying between 45% and 50% once the West Zone reaches steady state. Nevertheless, GS recognises that the global economic outlook remains weak and it will continue to be prudent with the granting of credit.

Keen to keep growing the company
On the other hand, management believes that the weaker economic outlook also presents acquisition opportunities (will only be keen to look at sizable investments of >S$500m and can clear its hurdle rate of 15%). GS is currently sitting on a cash balance of S$4.5b after recently raising S$2.3b from perpetual securities. GS also has some green-field targets, including Japan, but concedes that progress is slower than expected. Nevertheless, it will continue to seek out these opportunities around the region.

Maintain BUY with revised S$1.66 fair value
However, in view of the more depressed economic outlook, we pare our DCF-based fair value from S$1.97 to S$1.66; but we maintain our BUY rating.