VIP spark in 3Q13
▊ 3Q13 results came in within expectations with 9M13 core net profit accounting for 71% of our FY13 forecast. We expect GENS to finish the year strongly on the back of the usual seasonality and a continued conducive credit environment for its VIP business. No change to our RNAV-based target price or EPS forecasts. We maintain our Underperform rating as we are still expecting de-rating catalysts from potential disappointing VIP GGR numbers, which remain volatile.
Strong 3Q13, driven by VIP
Adjusting for S$40m in one-off property-assessment charges, 3Q13 core net profits were up 59% yoy, fuelled by operating leverage in its VIP business. Its VIP win rate was 2.95% vs. 2.85% in 3Q12 with a 58% yoy increase in betting volume, translating to S$610m in GGR (+89% yoy, +40% qoq). Management attributed this to a broadening out of its VIP clientele not just in China but also in South-East Asia. However, we believe its VIP business is ultimately dependent on credit and it is too early to tell whether it has found sustained growth and recovery. 4Q12 and 1Q13 saw similar spikes in VIP rolling chip but there was a pullback in 2Q13 when credit was reined in. Trade receivables crossed S$1bn for the first time and we estimate that S$473m in bad debt has been provided for since operations began. About S$50.2m was provided for in 3Q13 vs. S$31.9m in 2Q13 and S$32m in 3Q12.
Stagnant in mass
Mass GGR was S$409m, down 15% yoy and 10% qoq. Market share for Resorts World Sentosa (RWS) dropped to 44% from 49% in 3Q12. A 550-room new hotel in the Jurong Lake District will be a key catalyst for RWS as it will cater to tour groups which should help drive yields on its gaming assets during off-peak hours.
Pricing in Japan
We believe based on our assumptions that the share price is factoring in a potential 50% stake for GENS in a US$10bn IR project in Japan with a ROCE of 15% valued at 12x EV/EBITDA. This works out to S$0.37/share in RNAV. We believe this represents much of the option value given that we are still very early in the timeline.
Publish date: 05/11/13