Kim Eng on 23 Feb 2012
Look to 2012. Genting Singapore (GENS) reported 4Q11 and 2011 results that were within expectations. Although it surprised with a single-tier final DPS of $0.01, Resorts World Sentosa’s (RWS) 4Q11 mass market gross gaming revenue (GGR) and VIP volume were uninspiring. That said, we maintain our estimates, Buy call and target price of $2.10 as we are optimistic that the newly opened Equarius Hotel & Beach Villas will boost VIP volume going forward. GENS also has potential for M&As.
Within expectations, maiden dividend declared. 4Q11 core net profit of $267.8m (+64% YoY) brought 2011 core net profit to $1b (+32% YoY), which was within expectations at 105% of our estimate. 2011 revenue of $3.2b (+18% YoY) was also within expectations at 99% of our estimate. As a pleasant surprise, a single-tier final DPS of $0.01 was declared.
Mass market segment was not as expected. While the six-week school holidays and new Transformers ride that opened on 2 December 2011 increased daily average visits to Universal Studios Singapore from 9,400 in 3Q11 to 10,250 in 4Q11, we estimate that RWS’s 4Q11 mass market GGR counter-intuitively eased 5% QoQ. We had expected RWS’s 4Q11 mass market GGR to have grown QoQ.
High VIP win rate and prudent credit policy expanded margins. Although RWS’s 4Q11 VIP volume contracted 26% QoQ, its VIP win rate of 3.9% (3Q11: 3.17%) and lower provisioning of $20.7m (3Q11: SGD56.9m) led 4Q11 EBITDA margin 2ppts higher QoQ to 51%. While the low 4Q11 VIP volume may spook investors, we caution that VIP win rate and VIP volume are inversely related.
Maintain Buy call and $2.10 DCF-based TP. Going forward, we are optimistic on 1Q12 post the opening of the Equarius Hotel & Beach Villas that will nearly triple RWS’s VIP room inventory. GENS also announced that it proposes to issue S$-denominated perpetual subordinated capital securities. There is no indication on nominal value, interest rate or purpose yet but we believe that GENS will either acquire a hotel site or develop casinos in Mongolia or Japan soon.
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