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Analysts believe Genting Singapore still holds the winning hand

Stanislaus Jude Chan
Stanislaus Jude Chan • 3 min read
Analysts believe Genting Singapore still holds the winning hand
SINGAPORE (Feb 26): Analysts are staying positive on Genting Singapore after the integrated resorts and casino operator capped off a good year on the back of an improved win rate for the VIP segment and resilience in its mass gross gaming revenue (GGR).
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SINGAPORE (Feb 26): Analysts are staying positive on Genting Singapore after the integrated resorts and casino operator capped off a good year on the back of an improved win rate for the VIP segment and resilience in its mass gross gaming revenue (GGR).

Genting Singapore recorded a 78% increase in full-year earnings to $685.5 million in the FY17 ended December, from $384.5 million a year ago.

FY17 adjusted EBITDA rose 47.8% y-o-y to $1.15 billion, from $779.0 million in FY16, largely on a 9.9% growth in gaming revenues and a 14.4% drop in cost of goods sold, with trade receivables impairment falling 79.5% to $48.2 million.


See: Genting Singapore posts 29% decline in 4Q earnings to $134 mil

According to CIMB Research analyst Cezzane See, the FY17 adjusted EBITDA was in line with estimates, accounting for 95% of CIMB’s forecast and 97% of consensus forecasts.

“Singapore VIP volumes returned to growth mode after consecutive y-o-y declines in 2014-2016. We believe this could be due to the return of Chinese gamblers,” says See in a report on Saturday.

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“GENS was careful in 2017 with regards to its VIP credit, but aims to ease credit policies in 2018 which could lead to higher VIP market share,” she adds.

CIMB is keeping its “add” recommendation on Genting Singapore with a higher target price of $1.49, raised from $1.45 previously.

Over at DBS Group Research, analyst Mervin Song believes GENS’ selectively extension of credit to its VIP customers should translate to higher y-o-y increase in earnings, which could diminish investors’ scepticism over the sustainability of its earnings recovery.

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“While GENS’ share price has rallied by over 45% since our upgrade to ‘buy’ in Aug 2017, we believe the rally can continue,” says Song in a Monday report. “Our view is underpinned by expected positive newsflow including the continued recovery in earnings, details of a more efficient capital structure, refresh of Resorts World Sentosa, and bid for a Japanese casino.”

DBS is keeping its “buy” call on Genting Singapore with a lower target price of $1.49, down from $1.51 previously.

Song says the lower target price is on the back of Singapore’s plans to raise the goods and services tax (GST) by 2 percentage points to 9% between 2021-2025, but notes that the valuation excludes the potential effects of the Japan casino.

According to RHB Research’s Singapore research team, Japan could be “the next holy grail”.

“Financial details on Japan’s proposed integrated resorts bill have been more forthcoming lately,” says RHB in a Monday report. “[Genting Singapore’s] management reaffirms its intention to participate in bidding for casino licenses – likely across all the potential cities – as the group acknowledges the potential competition from other operators.”

The implementation bill is expected to be passed later this year, with bidding likely to be called for in 2019.

“While we are glad to see continued improvements under Genting Singapore’s overall gaming performance, we believe the current valuation is fair and caution that a pricing war to bid for casino licenses in Japan is imminent,” says RHB.

RHB is keeping its “neutral” stance on Genting Singapore with a higher target price of $1.34, raised from $1.21 previously.

As at 12.04pm, shares of Genting Singapore are 7 cents down, or 5.4% lower, at $1.23. According to DBS forecasts and valuations, this implies an estimated price-to-earnings ratio of 19.4 times and a dividend yield of 2.9% for FY18.

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