Highlights 

Las  Vegas  Sands’  Singapore  property  Marina  Bay  Sands (MBS)  released  its  9MFY14  results  earlier  with  EBITDA  of US$1.2bn  or SG$1.53bn  (+7% yoy).

Margins  in  9MFY14  has  widened  by  +7.8%-pts  yoy  (-0.2%-pts  qoq),  largely  contributed  by  the  encouraging  rolling  chip win  rate  in  the  VIP  segment.  The  segment  experienced  a higher-than-expected  average  rolling  chip  win  rate  of  3.17% (vs.  2.63%  in  9MFY13).  Note  that  the  significant  growth  in margins  was  due  to  weaker  9MFY13  from  lower  rolling  chip win  despite a stronger rolling  chip volume.

Performance  in  the  mass  market  segment  in  9MFY14 remained  stable  at  total  mass  GGR  of  US$1.29bn  (or SG$1.64bn)  with  both  volume  and  win  rate  largely unchanged.  Non-gaming  operations  on  the  other  hand continued  growing,  albeit  marginally,  with  hotel  occupancy rate  reaching  maximum  at  99. 3%  vs.  99.2%  in  9MFY13. Average  daily rate grew  as well by 12.7%  yoy.

As  for  the  implication  of  MBS’  results on  Genting Singapore (GenS),  assuming  similar  market  share  as  previous  quarter, GenS  could  potentially  record  a  rolling  chip  volume  of  circa SG$17.4bn  in  3QFY14  (-15.1%  yoy;  -11.3%  qoq),  bringing its  9MFY14  rolling chip volume to circa SG$60.68bn (-0.26% yoy).  Despite  the  slight  decline,  the  estimated  rolling  chip volume  was  well  within  our  full  year volume forecast   (76.4%) of SG$79.3bn.

Gaming  operations  aside,  we  are  maintaining  our  view  that its  non-gaming  operations  would  continue  to  record sustainable  profits.  Do  note  that  3Q  is  usually  seasonally weaker  due to a quieter quarter.

All  in  all,  we  believe  GenS’  9MFY14  results  would be within expectations,  provided  that  rolling  chip  win  rate  does  not deviate  much  from  its  theoretical  hold  rate  of  2.8%. Nevertheless,  should  GenS’  share  price  weakens  due  to MBS’  lower  win  rate in 3QFY14  (at 2.64%), we would advise investors  to take the opportunity  to accumulate.

Risks

• Regulatory  risk
• Further  decline in RWS’ market share to MBS
• Weaker-than-expected  hold percentage  in the VIP segment
• Worsening economic condition
• Failure in casino licens e renewal.

Forecasts

• Remained  unchanged  for  now,  pending  results  release  next month.

Rating

BUY

• Positives   –  (1)  Strong  cash  generating business ;  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 unchanged TP of  SG$1.54  based on 9.5x FY15’s EV/EBITDA.

Source: Hong Leong Investment Bank Research - 17 Oct 2014