• 1H NPAT met 49% of FY forecast
• 2014 outlook remains cautious
• HOLD with S$1.33 FV

1H14 earnings still within forecast despite impairment

Genting Singapore (GS) reported its 2Q14 results last evening, with revenue rising 6% YoY to S$751.0m; this as it continued to experience better-than-theoretical win percentages (VIP hold remains at 3%; also has 60% of the VIP market share). However, reported net profit slipped 27% to S$102.3m, mainly due to a large impairment loss of S$81.6m on trade receivables (versus S$31.9m in 2Q13). But management explains that it was just being prudent (aging of these debts around 9-12 months) and calls it "a one-off". Nevertheless, thanks to a very strong performance in 1Q14, 1H14 reported net profit still climbed 29% to S$330.8m, meeting 53% of our full-year forecast, while revenue grew 15% to S$1579.8m, or around 49% of our FY14 estimate.

Outlook remains cautious

Nevertheless, management remains mostly cautious for the rest of the year, noting that the persisting uncertainties in the global economic environment and geopolitical conflicts are likely to still weigh on the economic outlook, especially in its key markets like China, which will have some impact on its VIP as well as mass gaming segment. However, it revealed that the quality of its visitors has improved, despite a drop in number.

Overseas expansion remains key

Separately, management updated that its IR in Jeju has received strong support from the South Korean government; although we understand that the construction is only likely to start in 1Q15, versus Jul 14 as previously guided. As for Japan, GS believes that there is growing support for IRs in Japan and expects the parliament to pass the bill around Nov or Dec. Management adds that the group has sufficient financial resources and is well placed to bid for this opportunity.

Downgrade to HOLD with S$1.33 FV

Although we are not revising our FY14 estimates, we are making slight changes to our cashflow assumptions; this results in our DCF-based fair value easing from S$1.43 to S$1.33. Given the limited upside for now, downgrade to HOLD.

Source: OCBC Research - 15 Aug 2014