News

• Multiple news sources reported that GenS has engaged an exercise of laying off 400 staff involving 150 croupiers, 200 supervisors and 25 pit managers.

• Official statement reply from RWS spokesperson said it was “in the process of reviewing its operational resources to ensure it stays relevant in this challenging market. "

Comment

• We are mildly positive on the exercise as it represents part of the cost rationalization needed to suit this market environment while staying efficient; as this one-off layoff would help to improve its bottom-line number post-exercise.

• Noted that the gaming revenue base has shrunk about 20% yoy attributed to the corruption crackdown and economic slowdown in China, compounded by the persistent challenges in collections and recovery of bad debt.

• We gathered through our channel checks that manager and supervisor are dismissed via VSS while croupiers are being laid-off through non-renewal of work permit or termination. It is believed that this would be the only major exercise for FY16 and is affecting about 3.3% of its total workforce of 12k without any major impact on its operation.

• Based on back-of-envelope calculation, this one-off exercise would cost RWS around SG$6-8m, based on the compensation of 0.5 month of wages for every year of service since RWS commenced its operation in 2009 plus final month of salary-in-lieu of notice. On top of that, additional sum of SG$1,500 is being paid for local employees in support for their job searches, training and social benefits.

• However, it is estimated to save around SG$20-25m p.a. post the exercise as a result of lower wages and employee benefits cost, circa 4-5% of the total salaries and employees defined contribution plan in FY15 amounting to some SG$ 534m. While we will consider this as one-off event, it is likely to be positive to the bottom line after the netting off.

• On the overall outlook, gauging from the staff cutting exercise is primarily from gaming segment; we are in the view that management is rather pessimistic on the outlook for gaming market in Singapore despite the change of marketing strategy to focus on mass and premium mass market staring to bear fruits.

Risks

• 1) Regulatory risk; 2) Further decline in RWS’ market share to MBS; 3) Weaker-than-expected hold percentage in the VIP segment

Forecasts

• Making no changes to our forecast as of now.

Rating

HOLD

• Positives – (1) Duopoly industry; and (2) Lower tax rates compared to regional peers.

• Negatives – (1) Highly regulated industry; and (2) Earnings are highly dependable on luck factor and hold rates.

Valuation

Maintain HOLD with unchanged target price at S$0.80 from based on EV/EBITDA multiple of 7.25 times, a 20% discount to peers.

Source: Hong Leong Investment Bank Research - 13 Jun 2016