Genting  Singapore's  9M14  core  earnings  of  SGD535.7m  fell  below expectations  as 3Q14 VIP luck factor  closed below 2.0% (vs theoretical hold of  2.85%),  while volume shed 5.0%  YoY  on tighter credit control. Management reaffirmed its cautious  medium-term outlook  in view of  a potential  slowdown  in  China's  GDP  growth.  We  revise  our  TP  to SGD1.14 (9.6% upside) as we peg a lower FY15 EV/EBITDA of 8.5x (from 10.0x) and following our earnings revision. Maintain NEUTRAL. 

Bad  luck.  Genting  Singapore's  9M14  revenue  grew  3.3%  YoY  to SGD2.22bn,  lifted by  both its VIP and mass market gaming segments. However,  its  core  earnings  of  SGD535.7m  (+7.7%  YoY)  fell  below  ourprojection  but exceeded  consensus  estimate  at 64.6% and  80.0%  of  therespective  full-year forecasts,  as  3Q14  numbers  were dragged down by the  subpar VIP luck factor of below 2.0%.  We estimate that  9M14 core earnings  would  have  amounted  to  SGD640m-650m  (at  77-78%  of  our previous forecast) at the theoretical VIP hold rate of 2.85%. 

Key  highlights.  3Q14  VIP  rolling  volume  shed  5.0%  YoY,  marking  its first  decline  over  the  past  two  years,  as  management  turned  more cautious  on  credit  extension  in  anticipation  of  a  potential  slowdown  in China's  GDP  growth.  The  move,  in  our  view,  would  help  to  contain further  pressure  on  its  impairment  on  receivables,  which  registered  at SGD39.7m in 3Q14 (vs SGD81.6m in 2Q14).  

Forecasts  and  risks.  We  cut  our  FY14F  EPS  by  12.1%,  taking  into account the subpar VIP luck factor YTD. We also lower  our FY15-16 net profit  forecasts  by  8-9%,  factoring  in slower  VIP  growth  as  we  believemanagement's more selective approach on credit offerings, coupled with the  lack  of  independent  junkets'  presence  in  Singap ore,  would  likely impede medium-term growth.  Key risks include volatility in VIP win rates and further weakness in Singapore's tourist arrivals.

Maintain NEUTRAL.  We are now pegging a revised FY15 EV/EBITDA of 8.5x (from 10.0x) to  Genting Singapore's  valuation. This  is  premisedon  an  unchanged  25%  discount  to  its  Macau  gaming  peers,  thatwitnessed  recent  share  price  retracements,  which  we  deem  justified given  the  more  stringent  regulatory  control  in  Singapore's  gaming industry. With that, our new TP now stands at SGD1.14 (from SGD1.39). Maintain NEUTRAL.

 

Source: OSK-DMG