Prefer 52% shareholder, Genting. Genting Singapore (GENS) reported disappointing 1Q13 results due to a poor VIP win rate of 2.12%. Although 1Q13 VIP volume surged 38% YoY, this momentum may not last. We raise our earnings estimates by 2-3% on higher FY13 VIP volume growth forecast of 20% (10% previously) and EV/EBITDA based TP by 2% to SGD1.70 but with only 6% upside currently, we downgrade GENS from BUY to HOLD. At 12.7x 1-year forward EV/EBITDA, GENS is trading at par to the Macau casino sector mean.

Below expectations due to poor VIP win rate. 1Q13 core net profit of SGD75.1m (-66% YoY, -56% QoQ) was below expectations at only 11% of our FY13 estimate. 1Q13 revenue of SGD669.6m (-15% YoY, - 16% QoQ) was also below expectations at 21% of our FY13 estimate. The shortfall was due to 1Q13 VIP hold rate of only 2.12% (assumption: 2.85%, 1Q12: 3.4%). That said, we estimate that 1Q13 hold adjusted core net profit (assumes theoretical VIP hold rate of 2.85%) of c.SGD200m was above expectations at 29% of our FY13 estimate.

VIP volume way above expectations but may not last. 1Q13 hold adjusted core net profit was above expectations as VIP volume surged 38% YoY to a record high SGD21.2b (assumption: +10% YoY). Annualised, 1Q13 VIP volume implies a whopping 41% growth YoY. That said, GENS is cautious on VIP volumes and debt collections over the next 2-3 quarters due to the uncertain Chinese economy and Chinese policy on anti-money laundering.

Downgrade to HOLD. We raise our FY13 VIP volume growth forecast from 10% to 20% but due to low VIP EBITDA margins of c.30% (mass market: c.60%), we raise our earnings estimates by only 2-3%. Consequently, we tweak our 1-year forward EV/EBITDA valuation from SGD1.67 to SGD1.70. GENS has appreciated 11% since our update note on 8 Apr 2013 but with only 6% upside currently, we downgrade it from BUY to HOLD. We prefer 52% shareholder, Genting (GENT MK, BUY, TP: MYR11.50) for its cheaper valuations of 16x FY13 PER.

Source: Maybank Kim Eng Research - 03 May 2013