Maybank KimEng downgraded Genting Singapore to Hold from Buy after an “unlucky” earnings quarter missed its forecasts turned it cautious on the company’s outlook.
Genting Singapore reported last week that its second-quarter net profit rose 3 percent on-year to S$177.62 million, with the casino operator saying the “luck factor” weighed. Revenue for the quarter ended 30 June slipped 6 percent on-year to S$560.30 million, it said last week.
Maybank KimEng said second-quarter core net profit of S$162.8 million, up 2 percent on-year, was a disappointment at only 22 percent of its full-year estimate due to a low VIP win rate of 2.6 percent, or 25 basis points before its projection.
The brokerage was cautious on the outlook ahead.
“We see limited scope for future positive earnings surprises due to the decelerating Chinese economy and increasing competition,” it said in a note this week. “On VIP volume, GENS believes the trade war between the U.S. and China will dampen the Chinese economy and create less Chinese VIPs.”
Maybank KimEng added that it saw a strong correlation between the Macau and Singapore VIP markets, with second-quarter Macau VIP gross gaming revenue growth of 14 percent on-year the narrowest since the first quarter of 2017, with consensus expectations for it to decelerate further.
The brokerage kept its earnings forecasts unchanged, however.
“While GENS’ earnings may still meet our expectations due to market share gains, we opine that future earnings outperformances may be
narrowing as industry gaming revenues are stagnating if not declining,” it said.
It also noted that while Genting Singapore has a “good chance” of winning a casino license in Japan, the winner won’t be announced for at least a year.
It cut its target price for Genting Singapore to S$1.26 from S$1.46, based on a lower multiple of 10 times enterprise value to ebitda, slightly below the five-year mean, from 12 times previously. Ebitda stands for earnings before interest, tax, depreciation and amortization.
The stock was down 1.79 percent at S$1.10 at 10:01 A.M. SGT on Friday.