Genting Singapore

CIMB Research, Nov 5

WE maintain our "underperform" rating (target price: $1.17) as we are still expecting de-rating catalysts from potential disappointing VIP gross gaming revenue (GGR) numbers, which remain volatile.

Adjusting for $40 million in one-off property-assessment charges, Q3 2013 core net profits were up 59 per cent y-o-y, fuelled by operating leverage in its VIP business. Its VIP win rate was 2.95 per cent versus 2.85 per cent in Q3 2012, with a 58 per cent y-o-y increase in betting volume, translating into $610 million in GGR. Management attributed this to a broadening out of its VIP clientele not just in China but also in South-east Asia.

However, we believe its VIP business is ultimately dependent on credit and it is too early to tell whether it has found sustained growth and recovery.

Q4 2012 and Q1 2013 saw similar spikes in VIP rolling chip, but there was a pullback in Q2 2013 when credit was reined in. Trade receivables crossed $1 billion for the first time and we estimate that $473 million in bad debt has been provided for since operations began. About $50.2 million was provided for in Q3 2013 versus $31.9 million in Q2 2013 and $32 million in Q3 2012.

Mass GGR was $409 million, down 15 per cent y-o-y and 10 per cent q-o-q. Market share for Resorts World Sentosa (RWS) dropped to 44 per cent from 49 per cent in Q3 2012. A 550-room new hotel in the Jurong Lake District will be a key catalyst for RWS as it will cater to tour groups which should help drive yields on its gaming assets during off-peak hours.

We believe, based on our assumptions, that the share price is factoring in a potential 50 per cent stake for Genting in a US$10 billion IR project in Japan with a ROCE of 15 per cent valued at 12 times EV/Ebitda. This works out to $0.37/share in RNAV. We believe this represents much of the option value given that we are still very early in the timeline.

UNDERPERFORM