Genting Singapore – Singapore
HOLD
(Maintained)
Results
• Genting Singapore’s (GENS) 3Q10 EBITDA and net profit fell to
S$347.6m (-31.2% qoq) and S$187.8m (-52.6% qoq), at the lower end of
consensus expectations, but in line with our expectation. The estimated
3Q10 gaming EBITDA fell about 30% qoq to S$320m-330m. Resorts
World Sentosa’s revenue fell 15% qoq reflecting principally an estimated
21% qoq fall in VIP revenues and 5% fall in mass market revenues. The
VIP-mass market gross gaming revenue (GGR) mix was about 55%:45%.
• Ebitda margins disappointingly declined 11.2ppt qoq to 46.7%, which
management attributed to a normalised win rate of around 2.85%
(estimate for 2Q10: >3.5%), and cost ramp up of non-gaming operations.
We reckon also (taking the cue from Marina Bay Sands’ results) that
marketing expenses and commission rate related to the VIP segment
rose as well.
• Positively, we reckon that the rolling chip volume eased only slightly
qoq, and dependency on locals have waned, with firm patronage from
China patrons (10-20% of mass market GGR, >20% of VIP GGR).
Key Financials
Year to 31 Dec (S$m) 2008 2009 2010F 2011F 2012F
Net turnover 630.7 491.2 2,967.4 3,509.9 3,810.8
EBITDA 27.1 (52.1) 1,357.8 1,574.7 1,683.9
Operating profit (15.8) (89.9) 1,049.7 1,228.0 1,335.0
Net profit (rep./act.) (124.8) (277.6) 273.0 885.7 991.3
Net profit (adj.) (57.2) (167.0) 723.3 885.7 991.3
EPS (S$ cent) (0.5) (1.4) 6.0 7.3 8.2
P/E (x) (483.1) (165.6) 38.2 31.2 27.9
P/BV (x) 10.1 6.7 6.3 5.2 4.4
EV/EBITDA (x) 1,078.3 (560.9) 21.5 18.6 17.4
Dividend yield (%) 0.0 0.0 0.0 0.0 0.0
Net margin (%) (19.8) (56.5) 9.2 25.2 26.0
Net debt/(cash) to equity (%) 11.0 23.8 33.0 16.9 0.1
Interest cover (x) 0.4 (0.9) 8.0 9.8 12.1
ROE (%) (4.1) (8.1) 6.4 18.3 17.1
Consensus net profit - - 708.4 1,070.8 1,215.7
UOBKH/Consensus (x) - - 1.02 0.83 0.82
Source: Genting Singapore PLC , Bloomberg, UOB Kay Hian
Regional Morning Notes
Friday, November 12, 2010
• Improved 4Q10 trends foreseen. Daily GGR could sustain at S$10m
(+10% qoq) in the seasonally stronger 4Q10, reflecting better rolling chip
volume and drop, due to seasonality (e.g. long school holidays in
Malaysia and Singapore; also note that 3Q10 patronage was also slightly
affected by ‘ghost month’ in August). We also understand that the luck
factor from mid-October has improved, from a poor start.
• However, market leadership could slip from 3Q10’s 53% share, with
RWS’ daily GGR in October trailing MBS’ daily GGR of S$10.9m through
the first half of October.
• Too much hope on junket? GENS hopes for Singapore to award its first
junket operator license by early-11, and that the junket business would be
significant (although management is unwilling to speculate on the size).
However, our forecasts have not factored in big bottom line contributions
from this segment as: a) the issuance of junket licence may be delayed
until after Singapore’s general election, b) participation from junket
operators may be limited (considering Singapore’s onerous disclosure
requirements), c) casinos are already directly dealing with many junkets’
patrons, and d) margins from this segment is a lot thinner due to high
commission rates (potentially up to 1.6% vs industry average of 1.3%).
Earnings Revision/Risk
• No change to our 2010-12 earnings forecasts, which impute a 2011F
GGR of S$6.0b-6.5b and 50% share for RWS. While there could be some
upside to our GGR forecast, there could be downside at the casino
operation’s EBITDA margin (3Q10’s estimated 51% is below our 2011
forecast of 54%). For 2011, we expect RWS’ casino operation to sustain
an average quarterly EBITDA of S$350m in 2011.
Valuation/Recommendation
• Maintain HOLD with fair price of S$1.85 or 15x FY11 EV/EBITDA in
acknowledgement that a bull market scenario can sustain a high
EV/EBITDA multiple to GENS. GENS also trades at a rich 13x 2011
EV/EBITDA even assuming the top end of consensus EBITDA (S$2.2b).
While the shares are trading above our fundamental valuation, we retain
our HOLD call for its good long-term prospects. Entry price: S$1.85.
Share Price Catalyst
• Sharp recovery of earnings.
• Legalisation of junket operators.
• Japan legalising casino, although the timeline can still be remote.
• On the negative side, any evidence of slowing gaming revenue
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