- At S$1.28/share, we reckon that Genting Singapore's (GenS) share price has reflected negative newsflow in respect of the slowdown in VIP business, higher expenses due to the completion of the Western Zone and amendments to the Casino Control Act. As such, we are keeping our BUY recommendation on GenS with a lower fair value of S$1.54/share compared with S$2.00/share previously.

- We believe that the group's net profit would recover in FY13F, underpinned by marketing efforts to attract overseas players. Operating expenses are also expected to stabilise due to the completion of the Western Zone. Soft opening of the Marine Life Park, which is in the Western Zone, is scheduled to take place in November 2012.

- We understand that GenS' EBITDA margin would improve in 2HFY12 after bottoming at 45% in 2QFY12. Upon the completion of the Western Zone at the end of the year, GenS' EBITDA margin would reach steady-state in 2QFY13. GenS' EBITDA margins are expected to hover between 45% and 50%.

- GenS' 1HFY12 results were below expectations and consensus estimates due to a 10% QoQ fall in the volume of business in the VIP segment in 2QFY12. Recently, Marina Bay Sands had also reported a 10% decline in its volume of business in its high-rollers segment. Volume of VIP business had weakened in Singapore in line with the slowdown in the Chinese economy, Win percentage in GenS' VIP segment was 3.1% in 2QFY12 versus 3.4% in 1QFY12.

- GenS' EBITDA margin shrank from 49.5% in 1QFY12 to 45% in 2QFY12 as the group incurred more expenses to complete the Western Zone. GenS recruited an additional 1,300 people to work in the Western Zone. Currently, GenS has a workforce of 13,600 people. Expenses were also higher due to the Marine Life Park.

- On a brighter note, GenS' impairment for trade receivables declined from S$36.2mil in 1QFY12 to S$31.6mil in 2QFY12. This was due to less credit being granted to the VIP players in line with a more prudent policy.

- In respect of GenS' investment in Echo Entertainment, we gather that it is only a portfolio investment so far. Management did not want to comment further on the investment. Generally, GenS has a hurdle rate of return of 15% before it considers any investment opportunities.

- There is optimism that Japan would liberalise its casino industry in 12-18 months' time. We understand that other prefectures in Japan are also interested to have a casino, apart from Tokyo, Osaka and Okinawa.

Source: AmeSecurities