• Adj. EBITDA margin at 40%
• Expect casino bill to be debated next week
• Maintain HOLD

3Q results exceeds expectations on EBITDA margins

Genting Singapore’s (GS) posted a strong set of 3Q16 results. Revenue growth was in line with expectations: 3Q16 revenue dropped 8.6% YoY to S$581.5m, on the back of a 9.8% drop in gaming revenue and a 22.8% jump in nongaming revenue. 3Q and 9M revenue made up 27% and 78% of our FY16 forecast respectively. Nonetheless, 3Q adj. EBITDA beat our expectations at S$233.6m, or 11.6% higher YoY, due to the decrease in bad debt provisions as well as the greater-than-expected cost-savings from GS’s right-sizing exercise in 2Q.

The adj. EBITDA margins came in at 40.2% for 3Q16, as compared to 24.1% in 2Q16 and 32.9% in 3Q15. 3Q and 9M adj. EBITDA constituted 34% and 79% of our initial FY16 forecast respectively. On a normalized hold basis, 3Q adj. EBITDA revenue would have been ~8% lower at S$215m.

Forces seem aligned in Japan

Management appears optimistic with regard to the Japanese Diet’s casino bill debate, which is expected to happen 9 Nov 2016. We note that GS may enjoy increased buying interest if the bill is passed. Going forward, we note the ongoing property enhancement at Maritime Experiential Museum that is scheduled to complete by end 2017 as well as the flow-through of cost-savings to future quarters. Meanwhile, the construction at Jeju has been stalled due to a typhoon and the damage to the construction works is currently being assessed. We expect most of the damages to be covered by insurance.

Fair value increases to S$0.81

We adjust our COGS to reflect the greater cost savings and lower bad debt provision going forward. Following the fine-tuning, our DCFbased FV increases from S$0.77 to S$0.81. Including Genting’s 1.5 S cent interim dividend, our blended FY16/FY17 dividend yield comes to 2.6%. Having scaled down its VIP segment and taken less credit risk, GS appears to be in better stead in this tough operating environment. We maintain HOLD with fair value of S$0.81.

Source: OCBC Research - 4 Nov 2016