SINGAPORE (Aug 6): Genting Singapore (GENS) did not disappoint consensus estimates in the 2Q19 ended June. But it remains to be seen how the integrated resort and casino operator will deal with a challenging mass market business, which saw a considerable decline during the quarter.

While 2Q earnings fell 5% to $168.4 million, adjusted EBITDA rose 11% to $294.4 million on the back of a higher VIP win rate of 3.7% – some 1.1 percentage points higher than the corresponding quarter a year ago and 0.7 percentage points higher than the average of 3% in the past nine quarters.

Buoyed by the higher-than-average VIP win rate, 2Q19 revenue climbed 14% to $636.8 million.

See: Genting posts 5% drop in 2Q earnings to $168.4 mil despite higher revenue

When the luck runs out, however, will GENS be able to overcome the soft near-term outlook?

The way Maybank Kim Eng Research analyst Yin Shao Yang sees it, GENS is facing the double threat of rising trade receivables impairment and a weakening mass market.

According to Yin, 2Q19 impairment of trade receivables rose to $47.3 million – the highest since 3Q16 – on the back of ongoing US-China trade tensions.

“More crucially, the high margin 2Q19 mass market gross gaming revenue (GGR) fell approximately 3% y-o-y and approximately 10% q-o-q due to the Singaporean citizens’ and permanent residents’ casino entry levy hike of 50% that came into effect on Apr 4, 2019,” the analyst adds.

Maybank is keeping is “hold” call on GENS but trimming its target price by 5% to 99 cents.

Citi too notes that GENS has attributed the 14% q-o-q decline in mass market revenue to a slowing Singapore economy and a higher casino entry levy, but adds that the management has indicated that it expects these players to return by the end of the year.

The investment bank is cutting GENS’ FY19-21 earnings estimates by 4%-7% and lowering its target price on the stock to $1.07 from $1.16, while maintaining its “buy” recommendation.

Over at CGS-CIMB Research, analyst Cezzane See is also cutting GENS’ target price.

“GENS guided that it is cautious on the VIP segment given the global trade uncertainties and highlighted that competition in the region may continue to intensify in the near future,” See says.

“Given a potentially softer 2H19, we trim our FY19-21F adjusted forecasts due to higher trade receivable impairments and higher operating costs,” she adds.

The brokerage is maintaining its “add” call on GENS, but lowering its target price to $1.00 from $1.06.

RHB Group Research analyst Juliana Cai, who is taking over coverage of GENS, says the high impairment of gaming receivables came as a surprise as the group had taken a cautious stance on extending credit to VIPs.

“We believe the group has taken the opportunity to be prudent on the back of a decent set of results,” Cai says, noting that the impairment was precautionary, and none of it has been written off yet.

RHB is keeping its “neutral” stance on GENS, but trimming its target price to 97 cents from $1.02.

However, DBS Group Research’s Singapore research team believes GENS has been “over-penalised by the market”.

“With GENS trading at 6.3x EV/EBITDA, which is around -2SD of its mean valuation of 11.7x, we believe the company has been over-penalised by the market for softness in its near-term EBITDA and free cash flows, and the current share price is at an attractive level,” the brokerage says.

“We remain positive on GENS’ medium and long term growth prospects, and the company deserves to trade at -1SD of EV/EBITDA,” it adds.

In addition, the analyst says clinching the Japanese integrated resorts project in Osaka would be a near-term re-rating catalyst.

DBS is maintaining its “buy” call on GENS with an unchanged target price of $1.20.

As at 11.01am, shares in GENS are trading 1 cent lower at 88 cents.

According to DBS valuations, this implies an estimated price-to-earnings ratio of 15.4 times and a dividend yield of 3.9% for FY19F.