Genting Singapore – Subdued Outlook For Gaming Volumes (Underperform)

Results / Briefing Note

• As expected, Genting Singapore’s (GS) came in below expectations, as 1HFY12 core net profit of S$360.3m made up just 33-37% of our and consensus’ FY12 forecasts. The main variances were the lower-than-expected gaming volumes, especially from VIPs (down 10-15% yoy versus our +1% yoy projection) and lower-than-expected EBITDA margin of 44.3% achieved in 2Q12 bringing 1H margin to 46.2% (versus our projected 49% for FY12), caused by higher costs related to the pre-operating expenses of the Western Zone.
• Conference call highlights: (1) Subdued outlook of global economy affecting gaming volumes; (2) Provision for doubtful debts are up yoy, but still within targeted range; and (3) EBITDA margins expected to remain weak until Western Zone fully opens.
• We have revised our forecasts down to reflect lower gaming volume growth and higher operating costs for the Western Zone, resulting in a revision of -25.1-27.3% for FY12-14. Postearnings revision and after updating for GS’ latest net cash balance, our fair value has been reduced to S$1.20 (from S$1.30), based on unchanged average of 8x FY13 EV/EBITDA and DCF. Due to the lacklustre operating environment and the potential of a more significant positive impact from the Western Zone only coming in from 2Q2012 onwards, we downgrade our recommendation on GS to Underperform (from Market Perform).

Source: RHB Research - 13 August 2012