SGX Stocks and Warrants

Genting Singapore: Weighed by nearterm negatives

kimeng
Publish date: Tue, 21 Oct 2014, 10:36 AM
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  • Down 29% YTD
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Japan Share price has taken a tumble

Genting Singapore (GS) has seen its share price taking quite a tumble after reporting a large S$81.6m impairment on its trade receivables in its 2Q14 results; this despite management saying that the charge is likely to “one-off” and it was just being prudent. To date, GS’ share price is down 29.4%, with the bulk of the fall (18.0%) coming after its 2Q14 results announcement on 14 Aug; but the rout in the global stock markets (STI is up just 0.7% YTD) has also not helped its cause.

Still faces near-term negatives

In view of the near-term negatives, the fall in share price may be partially substantiated. As seen in rival MBS’ 3Q14 results just out, gaming volume has fallen quite drastically, especially for the VIP segment (down 34% YoY to US$9.1b), following the drop in Chinese tourist visitation. As GS commands a larger share of the VIP market here, it would thus feel a bit more of the impact. Following the previous quarter’s large provision, investors are likely to keep a close watch over GS’ accounts receivables, which stood at S$1.19b as of end Jun 2014.

Keeping FY14 estimates for now

In any case, we would have a better idea of how much has the drop in Chinese tourists affected its business when it next reports its 3Q14 results in mid-Nov. As our forecast already provides for a 30% decline in core earnings for the third quarter, we opt to keep our FY14 estimates for now.

But lowering fair value to S$1.03

Nevertheless, we tweak our DCF model to assume a lower free cash flow growth rate, which lowers our fair value to S$1.03; this to account for a slower China economic growth outlook over the next few years. But we note that value is starting to emerge around current levels, making GS a decent bet for a potential Japan IR win. Maintain HOLD.

Source: OCBC Research - 21 Oct 2014

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