• Significant EBITDA margin expansion
• Attractive share price as at 10 May close
• FV remains at S$1.45

EBITDA Margin Expands to 53% in 1Q

Genting Singapore (GS) posted a strong set of quarterly results to start FY18. 1Q18 revenue increased 15% YoY to S$675.1m, supported by a 17% increase in gaming revenue and 10% increase in non-gaming revenue. Both VIP and premium mass segments continued to deliver while the non-gaming segment saw visitation to attractions exceeding 18K, higher average spend and a robust 94% occupancy rate for hotels.

Recall that the Maritime Experiential Museum was also reopened in Dec 2017. 1Q18 adjusted EBITDA grew 27% YoY to S$358.9m, with a margin of 53.2% for the quarter. Excluding a one-off gain of S$96.3m on the disposal of GS’s investment in Korea in 1Q17, net profit would have increased 91% YoY.

Room to Continue Growing VIP Volumes

Given that the impairment of trade receivables remained stable, we believe that the group has room to pursue a looser credit policy. Recall that the impairment charge for trade receivables was only S$48.3m in FY17, compared to much higher levels of S$235.1m in FY16 and S$270.7m in FY15.

On the other hand, for the non-gaming segment, we look forward to events such as Football Fever in Jun/Jul as well as the theatrical production Super Mommy in May. We also expect 2018 and 2019 to be positive for the wider hospitality sector in Singapore, as the addition of new hotel rooms slows down.

Positive on EBITDA Growth Prospects

We note the opportunity for margins to grow further in the medium-term as GS embarks on its innovation plan to address challenges such as manpower constraints. GS notes that the IR Implementation Bill has been submitted to the Japan Diet on 27 April and expects the debate on the bill to commence this year.

After making adjustments, our FCFE-based fair value remains at S$1.45. As of 10 May’s close of S$1.16, GS’s share price has corrected 17% from its peak in Jan and has an expected upside of 25% to our fair value, excluding dividends. Given the robust operational outlook, we re-iterate BUY on the stock.

Source: OCBC Research - 11 May 2018