Genting Singapore (GENS), a 52.7% subsidiary of Genting Bhd (GENT), reported a 5.4% decline in 2QFY19 net profit to SGD168.4m, mainly due to higher depreciation and amortization costs. At the adjusted EBITDA level, the 1HFY19 results came in within our estimates. Despite slower mass gaming business, Resort World Sentosa (RWS) was able to deliver satisfactory results due to higher rolling win percentage in the VIP segment. As a result, 2QFY19 adjusted EBITDA increased by 10.7% YoY. In relation to its plan for Japan Integrated Resort (IR), GENS has fully met the application guidelines and qualifying criteria of the Osaka Request-for-Concept. We believe GENS stands a good chance in securing one of the three IRs in Japan, backed by its track record in operating a successful and large-scale integrated resort in Singapore. We reiterate our Outperform rating on GENT with a revised SOTP-based TP of RM9.25 (from RM8.80 previously).

• 2QFY19 revenue rose 13.7% but net profit fell 5.2%. The gaming segment, which made up of 69% of group’s revenue, posted a 22% increase on higher rolling win percentage in the VIP rolling business segment. However, due to the increase in VIP business, impairment on gaming receivables rose to SGD47.3m from under SGD1m in 2QFY18. Meanwhile, the underlying mass gaming business experienced a decline in the quarter due to slowing local economy and poor consumer confidence. Owing to a 43% jump in depreciation and amortization costs, GENS’ net profit fell by 5.2%.

• Expansion plan for RWS on track. GENS is embarking on the implementation phase of its SGD4.5bn expansion plan. The new development will include the expansion of Universal Studios Singapore with the addition of two new theme parks, expansion of the S.E.A Aquarium and the conversion of existing theatre into a new Adventure Dining Playhouse, which is scheduled for re-opening in 2021. With this plan, RWS gross floor area is expected to increase by 50%.

• Maintain Outperform with a revised TP of RM9.25. We revise our SOTP-based TP from RM8.80 to RM9.25 due to the revision in our TP for GENM following the resumption of its partnership with the Fox Group. In the medium term, the key catalyst for GENT is the possibility of GENS securing one of the three IR licenses in Japan. Trading at only 14x forward earnings, we see value in GENT and hence, maintain our Outperform rating on the stock.

Source: PublicInvest Research - 5 Aug 2019