GENS reported 2Q adjusted EBITDA of S$194mn (excludingS$102.7mn one off gain from property tax refund), -38% yoy or -15% qoq
. Adjusting for luck and one-off, 2Q EBITDA was S$270mn, in line with JPMe/consensus. Nonoperating loss from FV loss on compound financial instrument (S$95mn) and exchange losses from investment (S$84mn) have led to net loss in 2Q. Looking ahead, we do not see any signs of stabilization for the VIP segment, while the volatile currency situation in ASEAN region poses threat to mass business. On top of unfavorable operating environment, volatility from nonoperating income/loss adds to earnings uncertainty as well. Remain UW, TP cut to S$0.77 (from S$0.95) on reduced earnings expectations
■ 2Q result highlight
(1) VIP: Rolling volume decreased further by 36% yoy or 11% qoq. Win rate was unfavorable at 2.1% (vs. 2.5% in 1Q15 and theoretical 2.85%).
(2) A/R: Bad debt expense as a percentage of gross VIP revenue remains high at 25% (13% for FY14, 25% for 1Q15) although absolute level dropped together with VIP volume.
(3) Mass and slot revenue accounted for 65% of GGR (1Q: 57%) and improved by 2% yoy or 6% qoq mainly driven by premium mass business.
(4) EBITDA Margin dropped to 34.3% (from 36.1% in 1Q) due to poor luck factor and operating deleverage.
(5) Depreciation reduced meaningfully to 1.2% of opening NBV (from c.1.7%% previously) as the company reviewed estimated useful lives of assets.
■ Other updates
(1) Nature of non-operating losses: Management commented that the compound financial instrument is similar to plain vanilla equity product and related to investment in public companies in gaming/hospitality business. Unrealized foreign exchange losses are related to US$ and HK$ cash on the balance sheet. We expect earnings volatility from non-operating income/loss given that there is no hedging, although the portfolio size has been reduced.
(2) Japan: No major progress has been achieved while management is still hopeful the bill can be passed by year end.
Management expects new gaming regulations to be passed by 1Q16,and a gaming license grant could be awardedsix months later. (Read Report)
Source : JP Morgan Asia Pacific Equity Research
Labels: Consumer Sector, Gaming Sector, Genting Singapore