SINGAPORE (Apr 6): CIMB says the market has overly discounted Genting Singapore despite its improved margins and balance sheet prowess.
Genting Singapore's share price last traded at 1 s.d. below historical mean in FY15 when gaming revenues fell 21% y-o-y with $270.7 million in trade receivable impairments and EBITDA margin was 34%.
But the casino operator is on better footing now that Singapore's VIP and mass market gaming environment have improved, says analyst Cezzane See in a Thursday report.
"With the tight grip on costs and the slight topline recovery, we forecast Genting Singapore's EBITDA margins to stabilise at the 47-48% mark in FY18-20, similar to the level in FY17," says See.
See says trade receivable balance have narrowed to all-time low of $126.9 million at end FY17, pointing to lower risk of large impairments.
As Singapore’s VIP volume is correlated to Macau’s VIP baccarat GGR (gross gaming revenue), the estimated 15-20% y-o-y growth for Macau GGR in CY18-20 is a positive, says See.
See is forecasting FY18/19/20 Singapore VIP volume growth of 5%/5%/2%.
"Genting Singapore was cautious with VIP credit previously but intends to ease up on this in FY18," says See, "This lends strength to FY18/19/20 Genting Singapore VIP market share estimates of 40.0%/40.5%40.5% vs 42% in 4Q17."
Genting Singapore's mass market share is also highly correlated to the RM/S$. As CIMB's in-house view is that there will be short-term strength in the RM/S$ exchange rates, this will support CIMB's FY18/19/20 mass market share estimates for Genting Singapore of 40% p.a.
Given that Genting Singapore's trade receivable balance at end-FY17 declined y-o-y to $126.9 million, CIMB is forecasting lower FY18/19/20 trade receivable impairments of $38.1 million/$41.0 million/$43.6 million.
Genting Singapore's FY17 DPS was at an all-time high of 3.5 cents, surprising the market.
Although the company has not committed to repeating this in FY18, See believes there is a high chance that Genting Singapore could raise DPS again, given absolute dividends would form a mere 9.2-12.4% of its potential cash pile in FY18-20.
CIMB has a target price of $1.40 or 11.5 times FY19 EV/EBITDA, 0.5 s.d. above the historical five-year mean. Potential catalysts include higher DPS and a Japan win.
Shares in Genting Singapore are up 4 cents at $1.12.
