Lacks short-term catalysts
Price Target : 12-Month S$ 1.64 (previous S$1.42)
•3Q13 results in line, strong growth in rolling chip cushioned weaker mass volume
•Limited clarity on potential M&A; Japan gaming liberalisation likely delayed to 1Q14
•Maintain HOLD, TP raised to S$1.64 in line with improvement in regional sector valuation
Results in line. 3Q13 EBITDA came in at S$347m (+15% y-o-y, +12% q-o-q), bringing 9M13 EBITDA to 71% and 75% of consensus and our estimates respectively. After 2 quarters of unfavourable luck factor, VIP win rate rebounded to 2.9-3.0% (2Q13: 2.5%; 3Q12: 2.8%). Similar to MBS, rolling chip continued to see strong growth (+58% y-o-y, +19% q-o-q) across the board. This helped to cushion impact from lower mass volume (tables: -10% y-o-y/q-o-q; slots: -5% y-o-y, -9% q-o-q). If not for the higher property tax (due to one-off prior year adjustment) and impairment losses (5% of receivables vs 2Q13’s 3%, largely expected given strong VIP volume growth), EBITDA margin would have improved 3.4ppts y-o-y, 4.2ppts q-o-q to 53.6%. Western Zone continues to ramp up, with visitor arrivals still rising (non-gaming +27% y-o-y, 7% q-o-q to constitute 22% of revenue).
Gaining ground in VIP but losing out in mass. RWS’ overall GGR market share improved by 3ppts to 51%, driven by an improvement in the VIP segment to 54% (based on rolling chip), making up for the slide in the mass segment to 44%. VIP is increasingly contributing a bigger chunk of RWS’ GGR (60% vs 2Q13: 53%; 3Q12: 50%).
Management turning less cautious as market uncertainty reduces with US QE tapering put on hold and global recovery on track. Nevertheless, we would watch the mass segment closely given lower local visitors and slower tourist arrivals growth, along with rising cost pressures from restrictions on foreign labour.
Limited clarity on new venture, which could take another 12 months to materialise (potential M&A in Asia with minimum 12% IRR target). As for Japan, gaming liberalisation may be delayed to 1Q14 from end-2013 although the gaming bill will likely be introduced at the current diet session. Japan could emulate Singapore by introducing an entry fee for locals. We see GENS and Las Vegas Sands as front-runners given their strong IR track record.
Maintain Hold, but raise TP to S$1.64 (from S$1.42) based on regional sector average of 13x FY14F EV/EBITDA. For gaming exposure, we prefer stocks leveraged to Macau and Philippines (Sands China, SJM, Travellers) given stronger growth potential.
Publish date: 05/11/13