Results

Genting Singapore’s (GenS) 1QFY14 core PATAMI of SG$213.3m came in within our expectations but above consensus, accounting for 24.4% and 30.5% respectively.

Deviations

Largely in-line.

Highlights

GenS experienced historical high in its rolling chip volume in 1QFY14 with estimated volume of SG$23.6bn (based on guided rolling chip market share of 59% and GGR split between VIP:mass of 56%:44%).

The impressive topline growth was also attributed to the favourable hold rate of 3.0% during the quarter vs. 2.12% in 1QFY13 and 2.5% in 4QFY13. This has led GenS margin to widen to 48.3% (1QFY13: 38.3%; 4QFY13: 36.1%).

Mass market volume still remained flattish and management do not expect the mass market segment to record any significant growth within the next few months.

Its 550-hotel room in Jurong is expected to incur a total capex of SG$200m with spending to peak this year. The hotel development is on schedule to open in mid-FY15.

Despite the encouraging volume recorded in 1QFY14, the group remained cautious throughout FY14 as: (1) China economy is seen to be slowing down; and (2) several elections to be held in FY14 within the region.

On its investment in Jeju Island, GenS is in the process of finalizing the development plans and is expected to obtain all building permits in mid-June with ground-breaking in end- June / early-July. The soft-opening of its hotels and other facilities is scheduled by early-FY17.

The group is optimistic with the prospects in Jeju as Chinese nationals are not required to have a visa if they fly directly to Jeju as opposed to flying to Incheon.

For Japan, the Casino Introduction Bill has been submitted and is scheduled to be read within the next few weeks. If passed, the bill will be brought to the Upper House, where obtaining a green light could be a challenge as the ruling party does not have the majority in the house. However, we believe GenS would continue to meticulously monitor and analyse its opportunities in developing an integrated resort in the country.

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

Forecasts remained unchanged. We have fine-tuned our numbers based on its latest annual report but FY14-16 EPS are largely maintained as we are maintaining our 10% rolling chip volume growth assumptions.

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 slightly higher TP of SG$1.68 (previously SG$1.67) based on FY15 EV/EBITDA multiple of 9.5x.

Source: Hong Leong Investment Bank - 6 May 2014