Results

Genting Singapore’s (GenS) 9MFY13 core PATAMI of SG$372m came in within our expectations but shy of consensus, accounting for 70.7% and 44.8% respectively. We consider this in-line as we expect stronger volume from premium segment players ahead as well as due to seasonality effect from year-end holidays, which would also assist GenS’ non-gaming division.

Deviations

None.

Highlights

Gaming: 3QFY13 turned out to be a VIP quarter, where VIP contributed to 60% of GenS’ gross gaming revenue (GGR). Mass market revenue declined from lower volume as well as win rate (decline ~10% yoy and qoq), while slots win fell 5% yoy and 9% qoq.

Growth in VIP volume came largely from players within South East Asian (SEA) countries, well spread and no longer from any particular country. The origins of visitors are now more diversified around SEA countries. Hold rate during the quarter also improved, recording slightly above theoretical rate of 2.85%. We estimate GenS’ hold rate in 3QFY13 to be between 2.85%-3.0%.

The non-gaming segment registered healthy growth with strong visitation. Its attractions enjoyed daily average visitation exceeding 18,000, while hotels achieved average occupancy rate of 94% with average room rate (ARR) of SG$405. We believe that the ARR are stabilising around the SG$400 mark from SG$430-450 previously.

EBITDA margins during the quarter improved marginally qoq to 44.7% given that GenS’ has almost finished with its preopening expenses on USS’ West Zone. Management opined that there are still rooms for margins to improve to approx. 45-46% going forward.

As for its foreign venture in Japan, management highlighted that GenS has interest in both Tokyo and Osaka. The gaming bill of Japan is expected to be submitted to the cabinet and to be raised in the Diet. However, due to the tight timeframe, the bill is expected to be debated in the next Diet session, which starts in Jan – Apr 2014.

GenS hopes that the gaming bill will be given a green light in the next Diet session with approval by March 2014.

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.

Rating

HOLD

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 HOLD with unchanged TP of SG$1.49 based on FY14 EV/EBITDA multiple of 9.5x.

Source: Hong Leong Investment Bank Research - 6 Nov 2013