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Morningstar | Genting Singapore’s 1Q Results Largely in Line; Shares Remain Undervalued. See Updated Analyst Note from 10 May 2019

Our fair value estimate of SGD 1.18 is unchanged following narrow-moat Genting Singapore’s largely in line first-quarter 2019 results. Adjusted EBITDA of SGD 330 million, was down 8% year over year but up 15% quarter over quarter. While the firm’s stock price will likely remain pressured by the higher than expected spending for the expansion of its integrated resort, Resorts World Sentosa in the near term, we think Genting Singapore remains attractive in the long run, given its healthy cash flow generation.

Genting Singapore’s VIP volume market share dropped to 44% from 47% in the previous quarter, with estimated rolling chip volume falling 9% quarter over quarter on the back of a challenging market condition. Nonetheless, the VIP business win rate of 3.3% remained higher than the theoretical rate of 2.85%, versus 3.4% in the last quarter. We believe the lower chip volume may also be partly due to less aggressive credit policy adopted by the firm, as management prefers to remain prudent due to uncertainty caused by geopolitical frictions. Meanwhile, impairment on trade receivables was healthy at SGD 11 million, versus SGD 36 million in previous quarter and SGD 9 million, a year ago. On the other hand, estimated nonrolling gross gaming revenue was largely flat quarter over quarter while management thinks that it is still too early to gauge the impact of the recent entry levy hike on mass market. The firm will continue to focus on exploring new markets to mitigate the impact of any slowdown and competition from regional peers. Management indicated that some regional casinos are offering high rebates to attract players, but this may not be sustainable. The firm’s adjusted EBITDA margin was solid at 51.5% versus 53.2%, a year ago.

The recent launch of Request-for-Concept process by Osaka was a welcome start to the establishment of Integrated Resorts in Japan, and Genting Singapore is stepping up its efforts to participate in the bidding process.

The Request-for-Proposal process by Osaka is expected to be launched around end 2019 with results to be announced in second-quarter 2020. While we think competition will be steep, Genting Singapore’s resorts and theme park attributes should still make it a strong contender. The firm has a strong balance sheet with more than SGD 3 billion net cash in hand. Coupled with strong cash flow from its business, management mentioned that the firm currently has no plan to raise capital through equity financing.