Highlights

Marina Bay Sands (MBS) showed a yoy growth of 12.3% in its gross gaming revenue (GGR) at US$773.1m. However, qoq GGR showed a decline of 11.8%.

Yoy: Total volume increased for rolling chip volume and slot handle, grew of 24.9% and 0.12% respectively. However, total non-rolling chip (mass market volume) experiences a slight drop of 3.5% in the same quarter.

As for GGR, all three segments showed mix results, largely affected by the growth/decline of win rates. Gross rolling chip revenue grew 30.6% from higher hold rate of 2.53% (2QFY12: 2.42%), meanwhile gross non-rolling chip revenue grew 1.8% as win increased by 1.2-ppt. However, slot revenue fell 3.7% as slot hold decreased by 0.2-ppt (refer Figure 1).

YTD: Gross rolling chip revenue only grew 11.4% although volume increased by 34.0%, largely due to the lower average win rate by 0.5-ppt to 2.52% from 3% in 1HFY12. Non-rolling chip’s volume went down marginally by 0.6%, but thanks to a 1.1-ppt increase in win rate, it resulted in a 4.3% growth in mass revenue. Slot machines on the other hand saw volume growth of 0.9% but did not managed to fully offset its lower slot hold of 5.05% (1HFY12: 5.3%), resulting in lower slot revenue (-3.9%).

Question was raised the 5 consecutive quarters of lowerthan- expected rolling chip win rate vs. theoretical rate of 2.85%. Nonetheless, it is not overly concerned by the management of LVS given large volume in the country coupled with a low tax rate. To note, GenS’ VIP revenue showed more fluctuations due to mixed win rate every quarter.

Assuming that MBS’s rolling chip market share stays at 52%, Singapore’s 1HFY13 VIP volume grew at an impressive rate of 32.6% yoy. With that, GenS could also perform similarly (in terms of rolling chip volume) assuming the group’s market share did not deviate far from its current level. If it is able to improve its hold rate (vs. 1QFY13), GenS upcoming results (8 Aug 2013) could excite investors.

Risks

1) Regulatory risk; 2) Further decline in RWS’ market share to MBS; 3) Weaker-than-expected hold percentage in the VIP segment; 4) Worsening in economic condition; and 5) Failure in casino license renewal.

Forecasts

Unchanged, but any lower-than-expected win rate for VIP segment could potentially revise down our current forecasts.

Rating

BUY

Positives – (1) Duopoly industry; and (2) Lower tax rates compared to regional peers.

Negatives – (1) Highly regulated industry; and (2) Earnings from gaming operations are highly dependable on luck factor and hold rates.

Valuation

Maintain BUY with unchanged TP of SG$1.58 based on 11.5x FY13’s EV/EBITDA.

Source: Hong Leong Investment Bank Research - 25 Jul 2013