• Mgt: No need for rights issue
• Cautious in extending credit for VIP rolling
• Fair value at S$1.23

1Q19 Adjusted EBITDA Falls 8% YoY

Genting Singapore’s 1Q19 results were below expectations. Revenue dropped 5% YoY to S$640.4m, contributed by an 8% YoY decline in gaming revenue and a 1% YoY increase in nongaming revenue. Gross profit dropped 16% YoY to S$289.2m. PATMI dropped 5% YoY to S$205.5m.

1Q19 adjusted EBITDA dropped 8% YoY to S$329.7m or 25% of our initial full-year forecast, which we consider below expectations. As a comparison, 1Q18 and 1Q17 adjusted EBITDA formed 29% and 32% of their respective full-year totals.

Management expects VIP rolling market to be challenging this year given macroeconomic concerns stemming from the ongoing US-China trade talks. In light of this, the group will remain cautious in extending credit for the VIP rolling business.

Marketing efforts continue to focus on the regional premium mass segment, for which we note faces stiff regional competition. Meanwhile, management noted that the non-gaming segment recorded its eighth consecutive quarter of YoY revenue growth with higher spend per visitor.

Swimming in Net Cash

Genting Singapore’s share price has corrected 11% since the 3 Apr announcement on the Resorts World Sentosa (RWS) expansion, till 9 May’s close. We believe one key worry had to do with the size of the capital expenditure required for the RWS expansion. We note that the group’s net cash stood at S$3.3b as at 31 Mar 2019, with cash balances of S$4.2b and borrowings of S$937m. Since then, the group made a voluntary pre-payment of S$680m outstanding under its syndicated senior secured credit facilities on 10 Apr 2019.

In terms of the schedule of financing requirements, the estimated S$1.0b land cost (out of the S$4.5b budget) for the RWS expansion will likely be paid in 1Q20. After that, the amount to be spent on the RWS expansion will likely peak in 2022 and 2023.

As for the Japanese project, should Genting Singapore’s bid eventually be successful, management estimates that construction would start mid-2021 at the very earliest, with funding likely not be needed until 2022 onwards.

Given the group’s 1) high net cash balance, 2) healthy net operating cash flows (S$1.1b in FY18), and 3) the potential to take on significantly more debt, we believe that a rights issue is not likely at this point in time. In addition, management clarified during the latest earnings call that they have no intention to conduct a rights issue.

After adjustments post this set of results, our fair value dips 6% from S$1.31 to S$1.23. Post the steep share price correction, we see upside to our fair value as at 9 May’s close. We maintain BUY on Genting Singapore.

Source: OCBC Research - 10 May 2019