Genting Singapore reported 3Q2010 core net profit of S$191mn, down 38% qoq, after market closed on November 11. Core profits were weak, mainly on sharply lower EBITDA profits at Resorts World Sentosa (RWS), down 32% qoq. RWS net revenues fell 15% qoq to S$732mn vs. GSe S$759mn and EBITDA was S$344mn vs. GSe S$370mn, both missing our expectations.
Similar to 2Q, there was not much disclosure on RWS’ gaming operations. Excluding non-gaming top-line estimates, we estimate RWS had S$622mn net gaming wins in 3Q – adjusting for VIP rebates (still at 1.2%), gross gaming revenues were S$823mn or S$8.9mn/day (2Q: S$10mn/day, 1Q: S$8.3mn/day). Compared with Marina Bay Sands’ (MBS) 3Q S$8.1mn/day, RWS lost market share in 3Q to 53% vs. 2Q’s 67% on MBS’ strong ramp-up. RWS attributed the weaker top-line to below-industry VIP win rate, a complete opposite to 2Q; while some investors may see this as purely “down to luck,” we believe it highlights Singapore’s VIP gaming market weakness of generally low volume, high bet stakes, which can swing VIP rates either way. Mass market play was also flattish due to competition (only MBS grew); we think we could be hitting near-term cap. Combining both MBS/RWS revenues, Singapore is annualizing US$4.6bn, 15% higher than 2Q and currently 20% of GS 2010E Macau gaming market. RWS 3Q EBITDA margins also fell to 47% vs. 58% in 2Q. Though this was somewhat expected – given 2Q was inflated by high VIP win rate – it was still lower than our 49% forecast. Bad debt provisions were flat, though we note receivables are creeping up, now 1.9% of VIP rolling chip volume (vs. 2Q’s 1.5%).
We view the results as disappointing, and believe it could lead to negative price reaction. 2Q results were clearly one-offs, and investors extrapolating that momentum will need to lower expectations. Our estimates and price target are under review pending further details.
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