M&A is seen as sole catalyst for the bleeding Singapore gaming industry.
CIMB's channel checks with junket agents show that approvals are forthcoming but gradual. CIMB notes that junket agents view Singapore as a long-term market
because of its "clean" reputation.
"Integration of the industry has to be micro managed, which means that profits from both IRs will take a backseat. The international mass market seems to be the only avenue for growth and will take time to build," it said.
Here's more from CIMB:
With 9M12 core earnings coming in at only 55% of our FY12 forecast, 3Q12 results were well below our expectations. We previously believed that the poor 2Q12 results were one-off but it does look like the business is going through a difficult transition.
We are cutting EPS by 11-20% for the stalling growth in gaming and pre-opening costs that cannot be amortised. Our target price, rolled forward to 9x 2014 EV/EBITDA, is revised downwards. The stock is cut from Outperform to Neutral. Key catalysts are M&A opportunities.
Hit by revenue and costs
We had expected a resumption of growth in 3Q with an adjusted EBITDA of S$390m and core net profit of S$200m. Instead, Genting Singapore (GENS) reported S$303m adjusted EBITDA and S$120m core net profit. Instead of our estimate of 11% qoq growth in gaming revenues, overall growth in the VIP and mass market business was down 3%. While 2Q12 was largely affected by a cutback on credit, 3Q12 shows that underlying end-demand is weakening.
Meanwhile, it booked in the P&L escalating costs from continued pre-opening expenses for West Zone.
M&A is sole catalyst for now
With over S$4bn of unencumbered cash on its balance sheet, GENS has its foot on the pedal for any new opportunities in the region. The focus remains squarely on Japan where there could be progress in legislation soon after the elections.
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