• FY core was 22% below estimate
• VIP segment to remain slow
• SELL with lower S$0.60 FV

Disappointing end to FY15

Genting Singapore (GS) saw 4Q15 revenue drop 14% YoY to S$547.4m, hit by weak VIP volumes as it continues to tighten credit in that segment; IR EBITDA fell 7% to S$181.4m, although holdadjusted basis EBITDA was S$237m. Still, due to a large one-off loss of S$79.8m, GS reported a net loss (after perpetuals) of S$7.8m, versus a net profit of S$89.2m in 4Q14; but if we excluded the one-off items, we estimate that core earnings would have come in around S$19m. For the full year, revenue fell 16% to S$2400.9m, or about 4% below our estimate, while reported net profit (after perpetuals) tumbled 85% to S$75.2m; core earnings would have come in around S$130m, or still about 22% below our forecast. GS declared a final dividend of 1.5 S cents, versus 1 S cent in FY14.

VIP segment to remain challenging

Going forward, GS says it will continue to “right size” its VIP business, noting that the collection of receivables remains “challenging”, which is probably a shade worse than the previous “difficult” description of the business. And while it expects to focus on the premium mass and mass market, GS concedes that RWS is a “huge” location disadvantage as compared to MBS; hence it would be difficult to bridge the gap. Nevertheless, GS has initiated several programs to target this affluent segment, including the use of brand ambassadors like actor Donnie Yen. On the other hand, GS remains upbeat about its non-gaming business, where its attractions have managed to draw in visitors despite the overall drop in tourist arrivals to Singapore last year.

Good progress on Jeju

Management also updated that it is making good progress in Jeju, where it is due to start construction of the hotels, retail and entertainment parts of the IR; it adds that the construction of the residential plot is advanced, and it expects to commence sales in 2Q16. As for Japan, there is likely still no clarity on the passing of the Casino Bill; but GS believes that it will still go through.

Too early to place bets

Given the uncertain economic outlook globally, we believe that there could still be room for casino revenues to ease in 2016; although we are hopeful of a recovery in 2017. Hence, our DCF-based fair value dips further from S$0.69 to S$0.60, and we retain our SELL rating.

Source: OCBC Research - 19 Feb 2016