Genting Singapore

Kim Eng on 1 Feb 2013

Don’t jump to conclusions. Marina Bay Sands (MBS) recorded decent 4Q12 results driven by VIP volume growth, but the same may not necessarily be true of Genting Singapore (GENS). Recall that when MBS’ VIP volumes surged 35% QoQ in 3Q11, VIP volumes at Resorts World Sentosa (RWS) were flat QoQ. We maintain GENS’ estimates, HOLD call and SGD1.35 TP on 11x FY13 EV/EBITDA. While its share price reacted positively to the news of MBS’ earnings, investors may want to take profit ahead of its results on 21 Feb 2013.

MBS’ 4Q12 earnings off an intra-year low. MBS reported 4Q12 net revenue of USD717.2m (+15% QoQ, -11% YoY) and EBITDA of USD302.5m (+16% QoQ, -29% YoY). The sequential improvement was driven by higher VIP volumes of USD16.5b (+40% QoQ, +53% YoY) and a higher, albeit still below theoretical, VIP win rate of 2.14% (+35bps QoQ, -120bps YoY).

High VIP volumes may not be sustainable. Although MBS’ 4Q12 VIP volumes were markedly higher QoQ and YoY, it said that VIP volumes are concentrated on only a few VIPs and will vacillate QoQ. We also note that its rebate rate of 1.31% of VIP volume was the highest since 4Q10. Thus, RWS too may have raised its rebate rates in 4Q12 to defend its share of VIP volume, but at the expense of margins.

Mass market segment still contracting. Conversely, MBS’ 4Q12 mass market revenue of SGD1.1b was down 2% QoQ and 3% YoY (slot handles were up 3% QoQ but down 2% YoY), likely reflecting a still-cautious outlook among mass market patrons around the region. Coupled with its below-theoretical VIP win rate of 2.14%, EBITDA margins remained suppressed at 42%.

May not be positive for GENS. When MBS’ VIP volumes hit a similarly high level of USD16.7b (SGD20.5b) in 3Q11, RWS’ VIP volumes stayed flat QoQ at SGD16.1b (Chart 1); it therefore lost market share. MBS stated that this was because it hosted 25 VIPs unique to it who did not gamble there again. This corroborates its earlier statement that VIP volumes are highly volatile.