• 9M core met 38% of FY estimate
• VIP segment to remain slow
• SELL until we see better clarity in Japan

Dull quarter yet again

Genting Singapore (GS) reported 3Q15 revenue easing 1% YoY to S$636.1m, as its gaming business continued to stagnate (down 5% due to lower business volume in the premium business); but adjusted EBITDA dropped 18% to S$209.2m, despite achieving hold rates around the theoretical level of 2.8%.

Although GS achieved a favourable forex gain of S$113m, it was offset by fair value loss of S$63m in its portfolio investments; but management notes that the portfolio has been reduced by 50% as of end Sep 2015.

Reported net profit (after perpetuals) came in 62% lower at S$37.2m; we estimate that core earnings would have been a loss of S$10.1m. 9M15 revenue was about 17% lower at S$1853.5m, meeting 74% of our FY15 forecast, reported net profit (after perpetuals) tumbled 81% to S$82.9m; we estimate a core earnings of S$110.6m, or just 38% of our previous full-year forecast.

"New normal" in VIP business

In the quarter, GS continues to face a very challenging VIP market, and has further impairment loss on trade receivables of S$92.5m, bringing the YTD total to nearly S$225.3m. Management explained that the impairment made was on credit granted in 3Q or 4Q of 2015, and these impairments should start to come down going into 2016; this as it has tightened its credit policy and only extending it to better quality players.

But without the benefit of a collaborative partnership in another gaming jurisdiction with a high volume VIP premium business, GS highlights the disadvantage in its marketing efforts. Hence, it will continue to be cautious with the VIP premium business, calling it a "new normal".

Downgrade to SELL with S$0.69 FV

While management notes that Jeju Island project is progressing according to schedule (expects to have a soft launch in end 2017), there was little clarity on the progress of the Japanese Parliament passing the Casino bill there any time soon, although management remains "sanguine" about the prospect of the passage of this bill.

To account for the more challenging VIP outlook, we have pared our earnings estimates for FY15 and FY16 by nearly 40%. Our DCF-based fair value also drops from S$0.81 to S$0.69. Downgrade to SELL until we see better clarity in Japan.

Source: OCBC Research - 13 Nov 2015