- 3Q14 missed on poor VIP win rates.
- Expect better 4Q14 on normalising VIP win rates. No change to EPS.
- Outlook still tepid. Maintain HOLD & SGD1.13 TP, at 9x FY15E EV/EBITDA. Prefer Galaxy and Genting Malaysia in sector.
3Q14 core net profit of SGD88.6m (-57% YoY, -39% QoQ) was below expectations, at only 15% of our 2014E estimate. Results were also below market consensus. Although 3Q14 share of VIP volume at 61% was above our 50%, VIP win rate of ~2.00% was way below our 2.85%. Consequently, 3Q14 was its second worst quarter on record.
3Q14 core net profit plunged 57% YoY from: i) an estimated 12% YoY contraction in VIP volume; and ii) a lower VIP hold rate of ~2.00% (3Q13: 3.05%). The above was moderated by estimated 6% YoY growth in mass-market GGR and a 21% YoY fall in bad debts to SGD39.7m or 11% of VIP GGR.
Tepid outlook, delayed expansion
Although 3Q14 disappointed, 9M14 core net profit of SGD447.5m (+9% YoY) still accounted for 75% of our FY14E estimate. This was due to a good 1Q14. As there is a chance that VIP win rates may normalise in 4Q14, enabling full-year earnings to meet our forecast, we make no changes to our EPS.
To be sure, 3Q14 VIP volume for Resorts World Sentosa (RWS) and Marina Bay Sands (MBS) combined cascaded 22% YoY. This reflected deteriorating conditions in key markets like China. While we expect VIP volumes from mainland Chinese to recover in 2015, we believe they could worsen before improving.
Given our tepid outlook and its delayed potential expansion into Japan and Korea’s Jeju, maintain HOLD and SGD1.13 TP, based on 9x FY15E EV/EBITDA or three multiples below its Macau peers.
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