May 12, 2012

Genting S’pore net profit above expectations on VIP volume surge

By Maybank Investment Bank Research
Buy (maintain)
Target price: S$2.00

GENTING Singapore Plc, which is a 52%-owned subsidiary of Genting Bhd, recently reported its first quarter ended March 31, 2012 results.

Its Singapore casino, Resorts World Sentosa's (RWS) first-quarter VIP volume surged 29% quarter-on-quarter. The share of both VIP volume and mass market gross gaming revenue (GGR) recovered 3 percentage points quarter-on-quarter.

Although management says that the liberalisation of Japan's casino industry is slowing, we are unfazed.

VIP volumes in Singapore are recovering strongly and therefore we maintain our “buy” call on Genting Singapore with a target price S$2.00 (RM4.91).

Its first-quarter core net profit of S$222.2mil (RM544.99mil), although 33% lower year-on-year, was above expectations at 28% of our full-year estimate. This was caused by a 17% fall in VIP volume year-on-year.

RWS commanded a 49% share of VIP volume, which was down 10 percentage points year-on-year and the VIP win rate hit 3.4%, down 40 basis points (bps) year-on-year.

For its quarter-on-quarter results, the first-quarter core net profit was 17% lower although VIP volume surged 29% quarter-on-quarter, as the VIP win rate of 3.4% was down 50bps quarter-on-quarter.

The first-quarter revenue of S$787mil (RM1.93bil) was 14% lower year-on-year, and at 26% of our 2012 estimate. Genting Singapore's outperformance was due to a VIP win rate of 3.4% versus our assumption of 2.85%. The decline was expected.

What is important is that the first-quarter VIP volume recovered 29% quarter-on-quarter, and RWS' share of VIP volume recovered 3 percentage points quarter-on-quarter to 49%. We believe that this was due to the opening of the 194-room Equarius Hotel & Beach Villas on Feb 16.

The first-quarter mass market GGR also grew 8% quarter-on-quarter and, consequently, RWS' share of mass market GGR recovered 3 percentage points quarter-on-quarter to 47%.

Going by Singapore's manufacturing production manager index, we had expected industry VIP volume to return to last year's levels only in the second quarter. We were pleasantly surprised that it did in the first quarter.

Although management continues to be cautious with credit, we are more optimistic on the second quarter but choose to err on the side of conservatism and maintain our earnings estimates.

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