Genting Singapore's FY12 earnings, which slightly beat estimates, were fuelled by stronger-than-expected  sequential recovery  in  VIP  gaming  volume.  Amid  a  less  risk-averse  2013 outlook,  the  group  is  eager  to  crank  up  growth  of  its  VIP  gaming  business.  We  factor  in  astronger overall full-year VIP rolling chips volume growth of 11% vs our original forecast of 6%,  and  lift  our  FY13  earnings  forecast  by  9.8%.  We  also  raise  our  EBITDA  valuation multiple from 10x to 12x, at a 10% discount to Macau gaming stocks' current average, and raise our FV from SGD1.20 to SGD1.57.

Marginally above expectations. The group's 4QFY12 core EBITDA stood at SGD369.3m (+21.8%  q-o-q  and  -6.4%  y-o-y).  Adjusting  for  the  various  exceptional  items  including SGD121m  in  fixed  asset  write-offs,  SGD71.2m  in  fair  value  gain  on  derivatives  and SGD43.4m  in  gains  from  the  disposal  of  available-for-sale financial assets, the group's FY12  core  earnings  of  RM755.3m  (-26.1% y-o-y)  were  in  line  with  the  consensus  but  a slight  6.1%  ahead  of  our  full-year  forecast.  Notwithstanding  the  impressive  q-o-q performance led by a recovery in VIP gaming volume, its full-year core earnings were still down  by  26.1%  y-o-y  on  the  back  of  a  4%  dip  in  VIP  volume  and  the  high  base  effect  of FY11's above-theoretical  average  VIP  win  rate  of  3.4%  compared  with  FY12's lower average  win  rate  of  3.1%.  The  group  saw  earnings  crimped  by  pre-operating  expenses arising from staff costs incurred from early FY12 before it opened its Marine Life Park. This had hurt margins while the group awaited new revenue from the Park, which flowed in only from Nov 2012 onwards.

Sterling  q-o-q  performance. Revenue and core earnings expanded by 19.1% and 22.9% q-o-q,  driven  by  a  sharp  recovery  in  VIP  gaming  volume  (+37%  q-o-q)  and  seasonally stronger 4Q  non-gaming  revenue  growth  (+23%  q-o-q) as  its  theme parks  benefitted  from the  school  holiday  season  during  the  quarter,  as  well  as  the  staggered  opening  of  its Marine Life Park in November 2012.

4Q12  VIP  volume  near  record  high.  The  robust  sequential  performance  was  largely attributed to a swift turnaround in VIP gaming volume, with rolling chips estimated to have increased 37% q-o-q. This matched the group's record high quarterly rolling chips volume achieved in 1Q11. As a result, overall gaming revenue was up 19% q-o-q. However, on a y-o-y  comparison,  gaming  revenue  dipped  3% y-o-y,  largely  attributed  to  the  exceptionally high base effect of 4Q11's 4.0% VIP win rate vs 3.0% in 4Q12.   

Gaming  receivables  up  sequentially.  It was not surprising that the group's receivables jumped 37.2% q-o-q to narrowly match the 37.0% q-o-q rise in VIP rolling chips volume. However, we caution that a pattern for these new receivables growth is yet to be established and there is still a risk that bad debt provisions could increase if the current recovery in global macroeconomic growth were to falter. In contrast to the mild 1.5% q-o-q uptick in bad debt provisions in 3QFY12, 4Q12's provisions increased at a much faster 34.6% q-o-q. However, its management indicated that a large portion of the receivable provisions were attributed to older legacy receivables and that  the  ageing  profile  for  the  newer  receivables  was  of  better  quality  as  the  group  had broadened of its VIP customer base of late. This shows that it has also been able to lower the concentration  risk  in  the  customer  base  as  well  as  improve  provisioned  run  rates.  As  such, theoretical  receivables  provisions  should  decline  as Genting Singapore's debtors  ageing  profile improve. 

A change of heart. The key take-away from yesterday's results briefing was management's swift turnaround in risk appetite and growth outlook that reflect greater optimism vs the largely bearish and  risk-averse  message  it  conveyed  just  three  months  ago.  This  is  evident  in  management's willingness  to  boost  VIP  gaming  volume,  which  was  accompanied  by  an  equally  significant growth in receivables. We sense that 1QFY13 VIP gaming volume is likely to stay robust in view of the traditionally stronger CNY season coupled with its management's optimistic outlook, which would help to sustain growth in 4Q12. 

Maintain  NEUTRAL;  FV  raised  to  SGD1.57.  Given management's less risk-averse outlook for 2013  and  its  willingness  to  boost  the  growth  momentum  at  its  VIP  gaming  business  after  two consecutive quarters of contraction in 2Q12  and 3Q12, we have modeled in a stronger overall full-year  VIP  rolling  chips  volume  growth  of  11%  for  FY13  vs  our  original  6%.  This  raises  our FY13 earnings forecast by 9.8%. We are also raising our EBITDA valuation multiple from 10x to 12x, representing a 10% discount to Macau gaming stocks' current average valuations. Given the improving  growth  outlook  in  2013,  we  raise  our  FV  for  Genting  Singapore  from  SGD1.20  to SGD1.57. The group, with its gross cash balance of SGD4.1bn, may find catalysts in the form of overseas expansion opportunities as and when lucrative markets like Japan open up

 Source: OSK