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.
(3) Korea: 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