Genting Singapore bracing for profit hit as tourist arrivals slow

Gaming giant will feel the pressure.

According to DBS Vickers Singapore, Genting Singapore is facing stiffer regional competition and a still-tight domestic labout market that will hit its key revenue drivers. The company is crossing its fingers for a positive boost from the liberalisation of Japan's gaming scene this year, but it could take a couple of years before the windfall from this positive development boosts Genting Singapore.

Here's more from DBS:

Dragged by weaker luck factor. If VIP win rate of 2.1% (1Q12: 3.4%, 4Q12: 3.0%) was normalized to theoretical average of 2.7-3.0%, 1Q13 EBITDA would have come in at S$400m (+27% y-o-y, +38% q-o-q) – constituting 25-27% of our and consensus estimates respectively. Similar to MBS, RWS’ rolling chip hit a new record (+38% y-o-y, +14% q-o-q) while mass volume continued to grow marginally (hold rate inched up to 24-25%) driven by Chinese New Year. Non-gaming revenue (22% of revenue) also rose 17% y-o-y (-10% q-o-q due to seasonality) with stronger hotel operations.

Turning cautious. Although GGR market share fell 4ppts to 46% (lower VIP win rate vs MBS’ 2.5%), RWS saw a 1ppt gain in rolling chip (48%) and mass win (47%). Debt impairment remained steady at 5% of receivables while receivables as % of normalized VIP GGR, declined 5ppt y-o-y, 2ppt q-o-q to 40%. Management however is concerned over China’s slower GDP growth and new anti-money laundering rules which could dampen VIP growth along with Malaysia’s election risk. Tourist arrivals and spending are also expected to be slower given keenerregional competition and Singapore’s tight labour market. This may be partially mitigated as RWS enhances its loyalty programmes and new attractions at USS (Sesame Street ride opened in Mar) and Western Zone (Dolphin Island opening soon).

Downgrade to HOLD (from Buy), TP revised to S$1.71 (from S$1.88) after cutting FY13-15F EBITDA by 11-21% on slower VIP growth and normalising win rate. Our valuation of RWS remains at 12x 2014F EV/EBITDA based on Macau sectoraverage. Potential Japan IR win could re-rate GENS but it may take another 2 years for the bidding process to complete even if Japan liberalises gaming in Nov (concurs with MBS’ view).

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