4Q13 results disappoint for the fourth consecutive quarter on lower than theoretical VIP hold rate.

High-margin mass market gaming revenue continues to fall YoY. We cut our FY14E-15E earnings estimates by 8%.

Maintain SELL with a lower TP of SGD1.26 (-4%). Imputing any Japanese and Korean casino option value remains premature.

What’s New

GENS’s FY13 core net profit of SGD464.1m was only 78% of our and consensus full-year estimates. The shortfall was due to (i) below theoretical FY13 VIP hold rate of 2.5%, and (ii) FY13 mass market GGR fell 5% YoY (assumption: +0% YoY). More disconcertingly, we estimate that mass market gaming revenue fell 15% YoY in 4Q13, with impairment of trade receivables of SGD57.5m at a new high.

GENS expects Japan to pass the Promotion Law in May or June but concedes that even if it wins a casino licence, construction will not commence until 2017 as the Implementation Law still needs to be passed in 2015. On its 50%-owned South Korean JV, GENS did not add much other than to say that it will build and sell properties surrounding the integrated resort to generate higher returns.

What’s Our View

We cut our FY14E-15E earnings estimates by 8% as we now assume that FY14E mass market GGR will be flattish YoY (previous: +5% YoY). Consequently, we trim our TP by 4% to SGD1.26 on an unchanged 10x FY14E EV/EBITDA and maintain our SELL call. We expect FY14E earnings growth of 38% YoY only because we expect the VIP hold rate to normalise to the theoretical average of 2.85% and not due so much to gaming volume growth. GENS concedes that it is cautious on VIP volume in view of tightening liquidity in China and expects mass market gaming revenue to be flattish due to the depreciation of ASEAN currencies vs the SGD.  

Source: Maybank Kim Eng Research - 21 Feb 2014