SINGPAPORE (Apr 10): Maybank Kim Eng is reiterating its “buy” call on Genting Singapore (GENS) with $1.46 target.
“In our view, all signals point to the VIP and mass markets improving going forward and GENS’s current share price is unjustified as it implies ‘crisis’ valuations,” says analyst Yin Shao Yang in a Monday report.
Since GENS reported 4Q17 EBITDA fell 20% q-o-q to $255.1 million, its share price has tumbled 14%.
See: Genting Singapore posts 29% decline in 4Q earnings to $134 mil
Yin says 4Q17 EBITDA was negatively impacted by lower than average VIP win rate of 2.7%, as well as provisions for staff bonuses, more events and inventory writeoffs of about $20 million.
However, adjusting for normal VIP win rate and excluding those one-off items, the analyst estimates 4Q17 EBITDA would have been fallen just 7% q-o-q to $285 million.
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This is "a comfortable 24% of our FY18 forecast,” says Yin.
VIPs are also repaying their debts quicker with 4Q17 VIP volume velocity at a record high.
Industry participants have also told Yin that the Macau VIP market recovery will spill over into the Singapore market, resorts world Sentosa (RWS) included.
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The analyst also expects the higher margin mass market to continue recovering in tandem with consumer sentiment in Singapore.
Moreover, there is also the possibility that RWS may regain more mass market gross gaming revenue (GGR) share than expected due to the recovering MYR and new premium mass offerings.
Currently, GENS is trading at only 9 times FY18 EV/EBITDA or -1 SD to the 12-month forward EV/EBITDA mean.
The last time GENS's traded at these valuations was when it suffered large derivative losses, foreign-exchange losses and impairments of trade receivables, says Yin.
But as its earnings quality is "a lot better today", Yin says GENS should trade at at least 12 times FY18 EV/EBITDA.
As at 3.00pm, shares in GENS are trading at $1.13 or 1.8 times FY18 book with a dividend yield of 3.1%.
