Genting Singapore (GS) has seen its share price taking quite a tumble, falling 29.4% YTD and down 18.0% alone after reporting a large S$81.6m impairment on its trade receivables at its 2Q14 results announcement on 14 Aug. But in view of the near-term negatives, especially lingering concerns over its accounts receivables and the decline in China high rollers, the fall in share price may be partially substantiated. Nevertheless, we opt to keep our FY14 estimates unchanged for now as we have already priced in a 30% YoY fall in core earnings for 3Q14. Still, we lower our DCF-based fair value from S$1.33 to S$1.03, mostly to reflect lower growth assumptions in wake of the likely slower economy in China for the next few years. But we note that value is starting to emerge around current levels, making GS a decent bet for a potential Japan IR win. Maintain HOLD.
Share price has taken a tumble
Genting Singapore (GS) has seen its share price taking quite a tumble after reporting a large S$81.6m impairment on its trade receivables in its 2Q14 results; this despite management saying that the charge is likely to “one-off” and it was just being prudent. To date, GS’ share price is down 29.4%, with the bulk of the fall (18.0%) coming after its 2Q14 results announcement on 14 Aug; but the rout in the global stock markets (STI is up just 0.7% YTD) has also not helped its cause.
Still faces near-term negatives
In view of the near-term negatives, the fall in share price may be partially substantiated. As seen in rival MBS’ 3Q14 results just out, gaming volume has fallen quite drastically, especially for the VIP segment (down 34% YoY to US$9.1b), following the drop in Chinese tourist visitation. As GS commands a larger share of the VIP market here, it would thus feel a bit more of the impact. Following the previous quarter’s large provision, investors are likely to keep a close watch over GS’ accounts receivables, which stood at S$1.19b as of end Jun 2014.
Keeping FY14 estimates for now
In any case, we would have a better idea of how much has the drop in Chinese tourists affected its business when it next reports its 3Q14 results in mid-Nov. As our forecast already provides for a 30% decline in core earnings for the third quarter, we opt to keep our FY14 estimates for now.
But lowering fair value to S$1.03
Nevertheless, we tweak our DCF model to assume a lower free cash flow growth rate, which lowers our fair value to S$1.03; this to account for a slower China economic growth outlook over the next few years. But we note that value is starting to emerge around current levels, making GS a decent bet for a potential Japan IR win. Maintain HOLD.
Genting Singapore (GS) has seen its share price taking quite a tumble after reporting a large S$81.6m impairment on its trade receivables in its 2Q14 results; this despite management saying that the charge is likely to “one-off” and it was just being prudent. To date, GS’ share price is down 29.4%, with the bulk of the fall (18.0%) coming after its 2Q14 results announcement on 14 Aug; but the rout in the global stock markets (STI is up just 0.7% YTD) has also not helped its cause.
Still faces near-term negatives
In view of the near-term negatives, the fall in share price may be partially substantiated. As seen in rival MBS’ 3Q14 results just out, gaming volume has fallen quite drastically, especially for the VIP segment (down 34% YoY to US$9.1b), following the drop in Chinese tourist visitation. As GS commands a larger share of the VIP market here, it would thus feel a bit more of the impact. Following the previous quarter’s large provision, investors are likely to keep a close watch over GS’ accounts receivables, which stood at S$1.19b as of end Jun 2014.
Keeping FY14 estimates for now
In any case, we would have a better idea of how much has the drop in Chinese tourists affected its business when it next reports its 3Q14 results in mid-Nov. As our forecast already provides for a 30% decline in core earnings for the third quarter, we opt to keep our FY14 estimates for now.
But lowering fair value to S$1.03
Nevertheless, we tweak our DCF model to assume a lower free cash flow growth rate, which lowers our fair value to S$1.03; this to account for a slower China economic growth outlook over the next few years. But we note that value is starting to emerge around current levels, making GS a decent bet for a potential Japan IR win. Maintain HOLD.
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