The worst is over; upgrade to BUY. We upgrade Genting Singapore (GENS) to BUY with a higher TP of SGD1.67 (+24%). While GENS delivered results that were within expectations, VIP volumes at Resorts World Sentosa (RWS) positively surprised. Going forward, VIP volumes may positively surprise again as Singapore is now a CNY hub with Industrial and Commercial Bank of China (ICBC) as the clearing bank.

Within expectations. 4Q12 core net profit of SGD169.7m (-36% YoY, +27% QoQ) brought FY12 core net profit to SGD665.2m (-35% YoY) or 100% of our FY12 estimate. Final DPS of SGD0.01 (+0% YoY) was also within expectations. FY12 core net profit was down 35% YoY as full-year VIP volume eased 5% YoY to SGD60b, and on a lower VIP win rate of 3.1% (-30bps YoY).

But, VIP volumes beat our estimates. 4Q12 core net profit was down 36% YoY due to a lower VIP win rate of 3% (-90bps YoY), a higher percentage of VIP GGR provided at 8% (+4ppts YoY) and start-up losses at Marine Life Park. That said, 4Q12 VIP volume surged 56% YoY to SGD18.6b, its highest level. This is because Chinese VIPs, who account for >50% of VIP volume, returned after China’s economy improved (Chart 4) and politics stabilised.

Raising earnings estimates by 9-13%. We now assume that VIP volumes at both casinos will grow 10% p.a., from being flattish in FY13 and growing 8% p.a. thereafter previously. We assume that RWS would still command 47% share of VIP volume going forward. The net impact is to raise our earnings estimates by 9-13%. Our new estimates imply 17% 3-year forward earnings CAGR.

Upgrade to BUY. As earnings have recovered QoQ, we believe that GENS should no longer trade at 11x 12M forward EV/EBITDA or -1SD to its historical mean, but rather at the historical mean 12M forward EV/EBITDA of 13x. Thus, we raise our TP to SGD1.67 from SGD1.35 and call from HOLD to BUY. GENS will likely benefit from more Chinese VIP volumes going forward, as Singapore is now a CNY hub, improving the convertibility of the CNY in Singapore.

Source: Maybank Kim Eng Research - 22 Feb 2013