• 4Q adjusted EBITDA up 12% YoY
• Keeping an eye on macroeconomic uncertainties ahead
• Fair value at S$1.31

FY18 Adjusted EBITDA Was Up 7% YoY

Genting Singapore (GS) posted a strong set of results in FY18, albeit a shade below our expectations as well as the street’s. FY18 revenue was up 6% YoY at S$2,539.2m, while gross profit was up 7% YoY at S$1,153.8m. Other operating expenses dropped 92% YoY from S$134.7m to S$11.1m, mainly due to a S$108.3m net forex loss recorded in FY17 (vs. FY18’s net forex loss of S$5.4m).

Recall that FY17 results also included a one-off gain of S$96.3m relating to the disposal of the group’s interest in the Korean Integrated Resort (IR). FY18 net profit increased 10% YoY to S$755.4m.

Since GS’s perpetual securities have been fully redeemed, PATMI increased by 26% YoY to S$755.4m. This made up 96.4% of our initial full-year forecast of S$783.4m and 95.7% of the consensus forecast of S$789.0m.

FY18 adjusted EBITDA was up 7% YoY at S$1,229.7m, helped by on-going productivity initiatives and making up 93% of our initial full-year forecast. In terms of 4Q18 numbers, revenue increased 15% YoY during the quarter. 4Q18 gross profit increased 8% YoY.

Administrative expenses as well as selling & distribution expenses were more than expected for the quarter, each increasing 33% YoY. All-inall, 4Q18 PATMI increased by 13% YoY and adjusted EBITDA increased 12% YoY.

Gaming: Revenue Growth But Higher Impairment Charge

Gaming revenue increased a robust 20% YoY to S$444.2m in 4Q18. However, we note that the impairment of trade receivables has increased sequentially from S$9.5m in 1H18 to S$12.9m in 3Q18 and then S$35.6m in 4Q18. In FY18 as a whole, an impairment charge of S$58.1m was recognized vs. that of S$48.3m in FY17.

Going forward, given the macro-economic uncertainties, management plans to exercise caution in extending credit to VIP customers. For the nongaming segment, revenue increased 5% YoY in 4Q18. RWS achieved an average daily visitation of >21k in 2018 and saw an increase in average visitor spend across all offerings. Average hotel occupancy came in at 95%.

Expect Japan IR Formal Bidding Process to Begin in 2H19

The formal bidding process for the Japan IR is expected to commence in 2H19. The group continues to make preparations on the ground for the formal bid. While we keep an eye on macro-economic certainties ahead and the potential impact on gaming revenues, we see value in the stock as at 21 Feb’s closing price. After adjustments, our FCFE-based fair value dips from S$1.39 to S$1.31.

Source: OCBC Research - 22 Feb 2019