• GENTING SINGAPORE LIMITED (SGX:G13)'s 1Q19 EBITDA slightly beat expectations, but we expect softer EBITDA momentum in subsequent quarters - easing gaming volumes and assuming the win % falls back to the theoretical levels.
• The key re-rating catalyst continues to be its bid for the Japan gaming concession (RFC submission expected in 3Q19).
• Meanwhile, the company’s balance sheet and cash flow can amply fund both RWS’ hefty capex and the Japan concession, while maintaining dividends.
• Maintain BUY. Target price: S$1.26.

Gens 1q19 Results

1Q19 EBITDA of S329.7m slightly ahead of forecast.

• GENTING SINGAPORE LIMITED (SGX:G13)’s 1Q19 annualised EBITDA’s 9% above our and consensus’ downbeat forecasts.
• Both the annualised VIP and mass market GGR beat our expectations, as mass GRR held steady (+0.2% q-o-q, -1.2% y-o-y) while VIP GGR did not fall as much as expected (-11.5% q-o-q, -16.3% y-o-y). RCV predictably fell (-8.8% q-o-q, -19% y-o-y) but win % remained high at 3.3%.

Stock Impact

• Genting Singapore's 1Q19 EBITDA margin remained high at 51% (4Q18: 43%, 1Q18: 53.2%) mainly reflecting above-theoretical win rate and low impairment (refer to RHS chart).
• Genting Singapore’s 1Q19 market share of industry GGR eased to 41% (4Q18: 44%), reflecting principally a fall in market share in rolling chip volume (RCV share fell to 44% from 47% in 4Q19). Positively, its estimated market share in the mass market segment remained relatively stable q-o-q at 39%.

Non-gaming revenue achieved the 8th consecutive quarter of yoy growth.

• Genting Singapore's 1Q19 non-gaming revenue rose 25% y-o-y to S$209m, accounting for about a third of group revenues. Hotel occupancy and RevPar, alongside theme park attendance and spending, remained robust (refer to RHS table).

Expects to submit RFC for Japan gaming concession by 3Q19.

• As the first RHS chart shows, we understand that Osaka is the first city making a request for concept (RFC), a pre-qualifying process for bidders to formally bid for the gaming concession via the request for proposal (RFP) which is expected by 4Q19. Osaka is expected to announce the winning bidder by 1Q20.

Cautious outlook for the rest of the year.

• We expect softer GGR in subsequent quarters, which is in sync with the company’s cautious outlook (amid tensing US-China trade war and stiffer competition from less regulated gaming jurisdictions in Asia) and mainly factoring in at-theoretical (lower) win %.
• Gaming volumes should be flattish to slightly down, reflecting an expected modest impact from the recently raised entry levy for local gamers (to S$150 from S$100 for single entries), while RVC should sustain after falling to a five-quarterly low.

Ample financial resources to support projects and sustain dividends.

• Our calculations support the company’s view that it does not need to raise equity to support expansion plans (Resorts World Sentosa’s S$4.5b plus Japan concession) and maintain S$ 3.5 cent annual dividends (amounting to S$360.8m annually). Our assessment takes into account its net cash at hand of S$4.2b combined with RWS’ S$1.2-1.3b annual EBITDA generation (EBITDA fall to S$1.26b in when gaming duties are raised).

Earnings Revision / Risk

• No change. While the expected GGR softness in subsequent quarters could still slightly beat expectations, we prefer to remain modestly on the conservative side

Valuation / Recommendation

• Maintaining our S$1.26 target price, which implies a target 2019 EV/EBITDA and dividend yield of 10.3 and 2.4% respectively. Current high dividend yield of 3.16% suggests that the share price has bottomed out.

Share Price Catalyst

• Genting Singapore's share price should react positively when the company submits its bid for the concession.

Source: UOB Kay Hian Research - 10 May 2019