Genting Singapore closed 0.4% lower yesterday. The gaming company announced its earnings last week and Macquarie Equities Research (MER) released a research report on 20 Feb reiterating its ‘Outperform’ rating and revising its target price from S$1.85 to S$1.65. Some excerpts from the report are shown below.

Event
Genting Singapore (GENS) reported 4Q13 revenue of S$693m and earnings before interest, tax, depreciation and amortization (EBITDA) of S$299m. Reported EBITDA performance was below MER’s expectation of S$363m held back by a lower-than-expected hold rate. Adjusting for the low hold rate, EBITDA would have been circa S$315m. GENS did show better performance than its competitor, MBS, which MER thinks is a good performance.

Impact
Overall revenue for RWS came in at S$693m for 4Q13, which was down 13% YoY. This decline was driven by both VIP and mass market.
 
The VIP decline was entirely due to the lower hold rate on a YoY basis with RWS reporting a 2.5% hold in 4Q13 vs 3% in 4Q12. If MER adjusts for this, VIP revenues would have been up 6% YoY (vs MBS which saw a 17% decline). RWS captured 53% of the VIP rolling chip volume.
 
On the mass market side, MER’s calculations suggest that revenues were down circa 13% YoY. Management stated that this weakness was largely driven by the fact that regional currencies had weakened relative to the Singapore dollar and hence, while they had grown the number of players, the overall volume had still seen a negative impact from currency.
 
On the company’s Korea investment in Jeju, management stated that they had picked the location due to its proximity to Japan and China as well as the fact that it was a visa-free destination for mainland Chinese to travel to. Management also stated that they were comfortable about obtaining a license after making a minimum investment of US$300m. The integrated resort complex is also expected to have condominium / real estate component to it.
 
On Japan, GENS is confident that legislation will be approved by late May / June. However, construction on a project is unlikely to start until 2017 given operators will need to be selected etc. GENS still remains committed to investing in Japan.
 
Management also noted that other than Japan and Korea, they were assessing another jurisdiction for an incremental investment opportunity. However, these deals often take circa 9-12 months to finalise and hence they would announce it at that point.
 
MER’s earnings and target price revision
MER lowers EPS by 23% to 5.9 cents for FY14 and 19% to 7.1 cents for FY15.
 
MER’s action and recommendation
MER retains its Outperform view and lowers its TP to S$1.65 from S$1.85. GENS is slowly starting to deploy its excess capital, which MER thinks will drive a re-rating of the multiple over time.

Source: Macquarie Research - 25 Feb 2014