Maintain HOLD with a lower TP of SGD1.34 (-21%). Genting Singapore’s (GENS) 1H13 results disappointed on low VIP hold rates and anemic mass market gross gaming revenue (GGR) growth at Resorts World Sentosa (RWS). We cut our FY13/FY14/FY15 estimates by 7%/19%/26% to reflect pedestrian GGR growth going forward. Our new TP of SGD1.34 is based on a lower target FY14 EV/EBITDA of 10x vs 13.5x FY13 EV/EBITDA previously. GENS is positive on expanding into Japan but this is premature, in our view.

Below expectations. 2Q13 core net profit of SGD128.5m (-8% YoY, +71% QoQ) brought 1H13 core net profit to SGD203.6m (-44% YoY) or only 28% of our full-year estimate. 1H13 revenue of SGD1.4b (-8% YoY) and 1H13 EBITDA of SGD560.5m (-19% YoY) were also below expectations at 43% and 39% of our FY13 estimates respectively. Although 1H13 VIP volume grew 34% YoY, the 1H13 VIP hold rate of 2.3% (our assumption: 2.85%) was down 100bps YoY. Furthermore, 1H13 mass market GGR only grew by 1% YoY (assumption: +10%).

Cutting FY13/FY14/FY15 estimates by 7%/19%/26%. We still assume VIP volume growth of 20% and a VIP hold rate of 2.85% in FY13 but trim our VIP volume growth assumption thereafter from 10% p.a. to 5% p.a. as GENS is particularly concerned about the Chinese economy. Chinese patrons account for at least half of RWS’ VIP volume. We trim our growth assumption on mass market GGR from 10% p.a. to 5% p.a., as GENS is particularly bearish on local mass market GGR. In fact, it expects local mass market GGR to trend down going forward.

Prefer GENM. We cut our TP from SGD1.70 to SGD1.34 (Table 1). Not only do we trim our earnings estimates, we roll forward our valuation basis from 13.5x FY13 EV/EBITDA to a lower 10x FY14 EV/EBITDA or -1 SD to its historical average 1-year forward EV/EBITDA multiple since mid-FY09 (Chart 4). We believe that such discounted valuations are warranted, as earnings visibility is increasingly poor. We much prefer sister company, Genting Malaysia (GENM MK, BUY, TP: MYR4.85) as it is expanding Resorts World Genting by adding >13% more rooms.

Source: Maybank Kim Eng Research - 7 Aug 2013