Warrants Highlight

Genting - Price target of $1.60 (MER)

On 12 November, Genting Singapore (GENS) reported 3Q12 results slightly below Macquarie Equities Research’s (MER) expectations. In its research report released on the same day, MER reiterates ‘Outperform’ rating but reduces price target by 5.9% to S$1.60. Also, MER lowers 2012 and 2013 EPS by 12% and 10% reflecting slower market growth. Below are excerpts from the report.

Macquarie’s Genting warrants

Earnings review
Total net revenues came in at S$670m, while adjusted earnings before interest, tax, depreciation and amortization (EBITDA) was S$303m (vs MER’s forecast of S$325m). However, GENS showed benefit from cost reductions in 3Q12 and with the opening of the Marine Life Park in December, MER thinks that the incremental revenues generated will lift margins and EBITDA meaningfully in 2013.

MER has always expected that Singapore would never exhibit Macau style growth especially in the current economic environment. However, with the current share price implying 3.5% long term growth rate for GENS EBITDA (assuming no terminal value), expectations remain too conservative in MER’s view. While some may compare GENS vs Macau names on headline multiples, MER does not believe this is a like-for-like comparison given the large difference in concession terms and capex pipelines.

Light at the end of the tunnel. For the last 2-3 quarters, GENS’ margins have been depressed by the Marine Life Park which was incurring startup costs (that were not being capitalised), with no commensurate revenues. However, with the Marine Life Park set to come into operation from 4Q12 onwards, MER continues to believe that there will be an incremental positive impact on GENS’ EBITDA. In addition, with the opening of the park, GENS will be a fully functioning facility, which MER thinks will allow the company to better package its product. This could have a positive impact on how GENS maintains and grows VIP and mass market share in Singapore.

3Q operational data points seemed solid. While the Singapore gaming market is showing signs of stagnation, GENS reported solid numbers relative to MBS. VIP rolling chip volume was down 3% quarter on quarter (against a 5% decline in receivables). On the mass side, GENS fared better than MBS by reporting a 3% decline in volumes (vs MBS at -6.5%). This was without the opening of the Marine Life Park, which should allow GENS to attract more mass market visitation. Management also managed cost base down (MER estimates fixed costs down 10% quarter on quarter), and stated there was further room to cut costs.

Balance Sheet. MER believes GENS managed its balance sheet well in 3Q12 and showed an improvement in receivable days. On the unlisted investments, management noted that they were in the company’s area of expertise and did not have exotic structures). MER suspects the investments could be in jurisdictions where GENS is attempting to gain gaming concessions.

Singapore Market Wrap

STI continues its weak streak

The STI continues it's downward momentum by closing down 1.0% to 2,978.0. This is the first time since 6th September this year that it closed below the 3,000 mark. The pressure is further aggravated with blue chip companies such as Singtel and Genting reporting less than favourable earnings.

Call STI 3100MBeCW130131 (PA7W) exercise level 3,100.*
Put STI 2800MBePW130131 (PA8W) exercise level 2,800.*

Yanlord reports stunning quarter
Yanlord's 9 months profit attributable to equity holders jumped a whopping 291% to RMB$1.2 billion, with revenue coming in at an increase of 32.6% to RMB$5.7 billion. Yanlord, a real estate developer focused on high-end commercial and residential properties in China, stated that it's projects are well received by home buyers and that it remains in a strong financial position. Yanlord rose 0.8% to $1.335 for the trading session.

Call Yanlord MBeCW130201 (Q4QW) exercise price $1.40.*

Singtel's stagnant results
Revenue for 2Q 2012 net profit slipped 2% to S$868 million, being impacted by weaker regional currencies. Its customer base continues to grow for the quarter while it has also make acquisition such as Pixable Inc, a US-based social photo aggregator, to expand its business coverage. Singtel dropped 0.9% to $3.16 day-on-day.

Call SingTelMBeCW130301 (PB6W) exercise price $3.30.*

Overnight Market Wrap

Lowest Dow Jones since June

Dow Jones fell to it's lowest since June after sliding 1.5% to 12,570.95, with the S&P also dropping 1.4% to 1,355.49, reversing an early gain of 0.4%. The S&P has fallen 5% since Obama was re-elected as the president of the United States,

The market was taken aback as retail sales fell in October due to consumers restraining spending as well as the impact of superstorm Sandy. Retail sales drop 0.3% against a survey of negative 0.2% after a 1.3% increase in September.

Concerns over the budget debate, as well as conflict in Israel, where Israeli airstrikes killed a militant Hamas leader, added further pressure on the markets.

Overnight Markets

Indices	Last	Change
STI	2978.03	-1.0%
HSI	21442.00	1.2%
DJIA	12571.00	-1.5%
S&P 500	1355.49	-1.4%
Nasdaq	2846.81	-1.3%
China A50	7121.08	0.4%

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Ex-dividend dates:
Fri 7 Dec: SPH ($0.17)