Genting - Results Leave Questions Unanswered

kimeng

Publish date: Fri, 11 May 2012, 10:42 AM

Warrants Highlight

Genting - Results Leave Questions Unanswered

Code	Name	Type	Expiry	Exercise Price
P2DW	GentingSMBeCW120904	Call	04-Sep-12	1.70
L2PW	GentingSMBeCW130103	Call	03-Jan-13	1.80
P1BW	GentingSMBePW120801	Put	01-Aug-12	1.60
L0QW	GentingSMBeCW130603	Long Dated Call	03-Jun-13	1.45

Yesterday evening, Genting Singapore reported a 1Q12 result that left some questions unanswered.

Total reported revenues came in at $786m, flat from the previous quarter (QoQ), but down 14% from the previous year (YoY). Net gaming revenue came in at $655m, up 2% QoQ and YoY. Adjusted earnings before tax was $376m, down 7% QoQ and down 2% YoY.

Macquarie Equities Research (MER) analysed what they deemed as a low quality result, and stated the following view.

Headline revenues assisted by luck
Out of the $786m in total revenues, the gaming segment reported $655m in net revenues, up 2% QoQ and YoY.

Within this segment, MER estimates that net VIP revenues were flat YoY and down 17% QoQ largely due to a low hold rate. The YoY performance was bolstered by a 3.4% hold rate versus theoretical in 1Q11. Management noted that rolling chip volume rose 29% QoQ (largely due to seasonality), but MER estimates were down 19% YoY.

Genting Singapore recovered some market share in 1Q12 with VIP at 49% and mass market at 47%.

Operating leverage a big question
Despite sequential QoQ improvement in gaming revenues, Genting Singapore reported an EBITDA margin of 48% in 1Q12 vs 52% in 4Q11.

Genting Singapore’s management stated that they added more cost ahead of the West Zone ramp-up; however, MER’s calculations suggest that the property cost base was relatively flat and that junket commissions may have edged up in 1Q12.

This makes more sense to MER, as GENS’ property data suggests declining appeal with occupancy rates falling from 89% in 4Q11 to 86% in 1Q12 – notwithstanding the opening of high-end hotel rooms. However, it is a question worth discussing with the Genting management.

Expect limited operating leverage in ensuing quarters
Genting’ s management noted that the expenses for the ramp-up of the West Zone has not been fully reflected in the P&L and that this would continue to increase in ensuing quarters – dragging on operating leverage.

Junket approval not the game changer the bulls hoped for
Genting’s management significantly played down the impact of the recently approved junkets (IMAs). Genting noted that the recently approved junkets were small and were not driving significant frequency of play, or attracting higher net worth customers. Genting was hopeful that in time the government would approve more powerful junkets; however, the timing of this is highly uncertain.

MER ‘Neutral’, retains target price
MER has a ‘Neutral’ recommendation on Genting Singapore and a 12-month target price of $1.55 on the stock. They expect its Q2 result in August to be a stock price catalyst. Genting Singapore shares closed down 1.2% at $1.67 yesterday.

Singapore Market Wrap

STI Almost Unchanged

STI hovered around the 2,900 level throughout the day before closing 0.1% higher day-on-day (dod) at 2,903.60. Banks and Singtel were the main outperformers, while Wilmar and SIA tumbled after disappointing results.

Call STI 3000MBeCW120629 (P8BW) exercise level 3,000.*
Put STI 2900MBePW120629 (P8CW) exercise level 2,900.*
Longer-dated Call STI 3100MBeCW130131 (PA7W) exercise level 3,100.*
Longer-dated Put STI 2800MBePW130131 (PA8W) exercise level 2,800.*

Strong afternoon performance for banks
The banks played a part in supporting the STI yesterday. All three banks rallied in the late afternoon, with UOB being the outperformer, rising 2.2% dod to $18.60. OCBC rose 1.3% to $8.93, while DBS rose 1.2% to $13.90. UOB announced its 1Q12 earnings on Wednesday, with its net profits growing 12.4% year-on-year to $688mn.

Call UOB MB eCW130103 (MW0W) exercise price $19.397.*
Call UOB MB eCW120704 (P5BW) exercise price $19.80.*

Call OCBC Bk MBeCW120802 (P1VW) exercise price $9.00.*
Put OCBC Bk MBePW120718 (P2OW) exercise price $8.40.*

Call DBS MB eCW120702 (P0VW) exercise price $13.90.*
Call DBS MB eCW120904 (QC6W) exercise price $14.00.*
Put DBS MB ePW120718 (P2NW) exercise price $12.80.*

SembMarine continued to slide
Rig builder Sembcorp Marine continued its losing streak yesterday, falling 2.7% to $4.65. It announced its earnings results after markets on Wednesday, with net profit falling 25% year-on-year to $113mn due to timing, value and the initial lower margin from new design jack-up rigs. The company has a net order book of $7.4bn, with deliveries up to 2015.

Call SembMar MBeCW120905 (P1FW) exercise price $5.058.*
Call SembMar MBeCW130603 (M8NW) exercise price $5.590.*

Overnight Market Wrap

US Stocks End Losing Streak

US stocks rebounded to halt its losing streak. The S&P500 rose 0.3% day-on-day to 1,357.99 after US initial jobless claims fell to 367,000 last week. However, the March trade deficit rose to $51.8bn due to a surge in imports.

JPMorgan Chase CEO, Jamie Dimon, reported that it could have lost US$2bn in recent weeks on synthetic credit securities. The losses are said to be linked to JPMorgan's Chief Investment Office. In Europe, the Spanish government took control of Bankia SA, the country's 4th largest bank, which was badly hit by its real estate loan losses.

Overnight Markets

Indices	Last	Change
STI	2903.60	0.1%
HSI	20227.28	-0.5%
DJIA	12855.04	0.2%
S&P 500	1357.99	0.3%
Nasdaq	2933.64	-0.0%

Corporate News

Corporate Announcements

Noble Group said 1Q12 net profit was US$110.1mn, a 46% drop from the previous year.

Genting Singapore said 1Q12 net profit was $205.5mn, a 33% drop from the previous year.

Results Announcement
Fri 11 May: OCBC 1Q12, Golden Agri 1Q12
Mon 14 May: STX OSV 1Q12
Tue 15 May: Olam 3Q12
Tue 29 May: Biosensors 4Q12

Ex-Dividend Date
Tue 15 May: Noble Group (US$0.0165)
Thu 17 May: Yangzijiang ($0.055)

Genting Sing (G13)

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