EUR 850.00 For Business Accounts Only

Morningstar | G13 Updated Star Rating from 06 Aug 2018

Narrow-moat Genting Singapore's first-half adjusted EBITDA of SGD 625 million, up 8% year over year, was within our expectations. Although second-quarter adjusted EBITDA of SGD 266 million was down 26% quarter over quarter, this was partly due to bad luck factor in the VIP business and seasonal weakness. We keep our earnings forecasts unchanged but we raise our fair value estimate slightly to SGD 1.38 per share from SGD 1.36 to take into account the time value of money. We consider the shares as undervalued and we think the firm's earnings recovery is still intact.

We are glad that Genting Singapore's VIP volume market share has improved to 50% in the second quarter from 34%, a year ago. While estimated rolling chip volume was up about 25% year over year, the firm's VIP business achieved a lower win rate of 2.6%, compared with the theoretical win rate of 2.85% and last quarter's 3.2%. We believe management's strategy to loosen its credit policy for the VIP business is working well and we see this as sustainable given that impairment on trade receivables fell to an all-time low of SGD 0.5 million from SGD 9 million in the previous quarter. That said, management is vigilant and will continue to monitor its credit policy closely, citing potential risk from the U.S.-China trade war.

Meanwhile, there appears to be some weakness in the firm's mass market operation, with gross gaming revenue estimated to fall 13% year over year and 9% quarter over quarter. Management believes the lackluster performance was due to regional competition from countries with fewer regulatory constraints and the firm is working on plans to revive the business. Genting Singapore is still planning for the revitalization project for Resorts World Sentosa and should be able to reveal the details by end-2018.

On the other hand, the Integrated Resorts Implementation Bill was enacted in Japan in July and the firm is expanding its Japan team to prepare for the bidding exercise.

However, management guided that it is still early in the process and the final outcome will likely be announced only in the first half of 2021, at the earliest. The firm is targeting Osaka and Yokohama currently, and with its SGD 3 billion net cash in hand, we think Genting Singapore is well prepared to bid in the country. We have not factored in any contribution from Japan in our valuation model.