• Genting Singapore's 3Q18/9M18 adjusted EBITDA of S$318.8m/S$943.6m was in line at 78%/76% of our/consensus (S$1.21bn/S$1.24bn) FY18F.
• At 5.9x forward EV/EBITDA, the market is likening GENS’s prospects to the “down years” of FY15- 16, but we do not believe it is that dire.
• We trim our FY19- 20F estimates and Target Price to S$1.28 (now based on 10x FY19F EV/EBITDA (vs. 11.5x), its 5- year historical mean). Retain ADD.

Adj. EBITDA Up on Sustained GGR Growth and Better Non-gaming

• Genting Singapore's 9M18 adj. EBITDA rose 5.3% y-o-y to S$943.6m (vs. 9M17: S$895.9m) as 9M18 gaming revenues (+2.3% y-o-y) were augmented by a 6.6% y-o-y jump in 9M18 non-gaming revenue.
• Low trade receivables impairment (9M18: S$22.5m vs. 9M17: S$43.6m) also contributed to the improvement in 9M18 adj. EBITDA margin (50.3% vs. 9M17: 49.4%).
• 9-Month core EPS was 83.7% of our full-year forecast.

VIP Up on Higher Market Share; Mass Holding Steady

• Estimated 3Q18/9M18 VIP GGR grew 5.7%/20.6% y-o-y on higher VIP market share of 46.8%/48.5% (vs. 3Q17/9M17: 37%/35.6%), despite 3Q18/9M18 win rates being lower at 2.9%/2.92% (vs. 3Q17/9M17: 3.1%/3.02%).
• In the mass segment, GENS kept pace with the industry, clocking in 3Q18/9M18 market share of 38.8%/39.4% (vs. 39.0%/39.3% in 3Q17/9M17).

Outlook

• GENS guides that it is still in a comfortable position to extend credit to attract VIP customers; although it remains highly cognisant of the near-term risks that the US/China trade war could pose on VIP flows. It deems its receivables position as very manageable.
• GENS recognises that regional competition in the mass segment is stiff; hence, it aims to continually upgrade its facilities. For Japan, the bidding process is estimated to start in 2H19F.

Market Unduly Pricing in Watershed Valuations

• At 5.8x FY19F EV/EBITDA, the market is pegging GENS to trough valuations of end-FY15 to FY16, in our view. During that period, adjusted EBITDA was below S$900m, trade receivable impairments were above S$230m-260m p.a., and receivables balance was above S$200m.
• 9M18 adj. EBITDA, trade receivable impairments and end- Sep 18 trade receivable balances are on relatively firmer footing.

Maintain ADD; Lower Target Price Just to be Cautious on Global Uncertainties

• We trim our FY19-20F adj. EBITDA forecasts as we opt to be cautious on forward earnings growth, and lower our FY19F EV/EBITDA Target Price basis to 10x, its average 5-year mean (vs. 11.5x previously) in light of global volatility.
• But with share price upside of 43.6%, we see the stock as a value buy and maintain our ADD call.
• Catalysts are higher-than-expected earnings growth; risks are vice versa.

Source: CGS-CIMB Research - 08 Nov 2018