GenS’ 1H18 core net profit of SGD403m (+29% YoY) was within expectations, declared dividend of 1.5 cents. The better results were driven by higher business volume and EBITDA margin. However, the lower QoQ results were due to lower business volume and poorer win rate. In Japan, GenS has formed a local team to focus on the bidding of IRs in both Osaka and Yokohama. Maintain BUY with unchanged TP of SGD1.42, based on unchanged EV/EBITDA multiple of 11x.

Within expectations. 1H18 revenue of SGD1.2bn translated into a core net profit of SGD403.1m, accounting for 53.9% and 51.3% of HLIB and consensus full year forecasts, respectively. Note that strong 1H results was partly elevated by the Lunar New Year in the 1Q, hence the results were deemed in line.

Dividend. Declared first interim dividend of 1.5 cents (going ex on 7 Sept 2018), which is within our full year expectation of 3.0 cents.

QoQ. Revenue dropped by 20.0% sequentially due to poorer luck factor and lower volume of business as 1Q was boosted by the Lunar New Year festive season. Core earnings came in at SGD162.8m, down by 18.2% in tandem with lower revenue recorded.

YoY. 2Q18 revenue of SGD560.3m was lower by 6.0% due to lower win rate despite the higher volume across all business segments. Core earnings, however, improved marginally 1.9% after adjusted for exceptional items such as exchange gain/loss relating to investments.

YTD. Revenue grew by 4.5% mainly due higher volume across all business segments. Notably, market share for VIP business has been growing steadily for the past three quarters following the policy to loosen the credit to attract more customers. Core earnings were up 29.3% thanks to the improved EBITDA margin (50.6% vs 48.7%) driven by leaner cost structure and lower impairment of bad debt.

Outlook. We are optimistic that strong results should continue to prevail in the subsequent quarters given the higher volume of VIP business and improved market share while costs are well controlled, provided there is no huge swing in the luck factor.

Japan. Following the enactment of Integrated Resorts (IR) Implementation Bill on 20 Jul 2018, we understand that GenS has set its sight on the possible destinations of IRs in both Osaka and Yokohama. A local team in Japan has been formed to prepare for the bid, which is expected to be around 2019/2020.

Forecast. Unchanged as the results were in line.

Maintain BUY on GenS with unchanged TP of SGD1.42 based on unchanged EV/EBITDA multiple of 11x. We believe the improving operating environment and lean cost structure will continue to benefit GenS along with the growing optimism in the regional gaming outlook. Besides, possible venture in Japan is another huge upswing factor in the near term.

Source: Hong Leong Investment Bank Research - 6 Aug 2018