• S$76m provisions in 1Q15
• 2015 outlook remains challenging
• Reduced fair value of S$0.95

Weak start to FY15

Genting Singapore (GS) reported a weak set of 1Q15 results last night, with revenue down 23% at S$639.2m, meeting just 23% of our full-year forecast; this as the integrated resort continues to feel the impact of the slide in China inbound visitors (gaming revenue fell 26% YoY; nongaming fell 8% YoY, -18% QoQ). Reported net profit slipped 73% to S$62.7m, also dragged lower by a fair value loss on derivative financial instruments amounting to S$118.0m (versus a gain of S$15.0m in 1Q14); although mitigated by a forex gain of S$119.3m (versus S$6.3m gain in 1Q14). We estimate that core earnings fell about 70% to S$61.3m, meeting just 13% of our FY15 estimate. Still, we did note of sequential improvements of 0.2% for topline and 67% for underlying net profit. Furthermore, adjusted property EBITDA improved 20% QoQ to S$228.1m, while margin recovered to 35.8% from 29.8% in 4Q14.

Outlook remains challenging

Having said that, management notes that the environment for the gaming industry in Asia remains challenging, especially for the premium segment, and it does not expect any respite in the medium term. GS will continue to adopt a cautious approach in granting credit to VIP gamers and will be prudent in providing for its receivables. As a recap, GS made S$76.3m receivables impairment in 1Q15, and could also see a similar provision in the coming quarter; this as collections are more difficult and could remain challenging to do so. But further ashore, GS is more “optimistic” about its prospects in both South Korea (Jeju) and Japan. Resorts World Jeju (RWJ) is progressing well and GS targets to progressively open RWJ from late 2017. As for Japan, GS notes that the Integrated Resort Promotion Bill has been submitted to the national legislature and sees this as a big step forward.

Downgrade to SELL with reduced S$0.95 fair value

But in light of the near-term challenges and potential provisions, we see the need to revise down our forecasts again – paring our FY15 revenue forecast by 12% and earnings by 28%; FY16 revenue by 9%, earnings by 16%. This will also reduce our DCF-based fair value from S$1.03 to S$0.95. Downgrade to SELL for now.

Source: OCBC Research - 15 May 2015