GENS reported satisfactory FY18 results. Although 4Q18 earnings were weaker QoQ likely due to provisioning, the resilient business volume indicated that the recovery is sustainable. Going forth, the sustainability of business volume remains the key in the midst of an uncertain economic condition. For now, we keep GENTING’s call unchanged pending its 4Q18 results release next week.

GENS’ FY18 matched expectations. At 97% of consensus’ FY18 estimates, Genting Singapore Ltd (GENS, Not Rated)’s FY18 core profit of SGD766.7m came in within expectations. At the adjusted EBITDA level, FY18 earnings of SGD1.23b accounted for 102%/99% of house/street’s FY18 EBITDA estimates. It declared a final NDPS of SG0.02 in 4Q18, which is the same amount paid in 4Q17. FY18 NDPS totalled to SGD0.035, which is also the same as that of FY17.

Weaker sequential result despite stronger top-line. 4Q18 core earnings contracted 28% to SGD152.3m, although revenue rose 4%, due to higher opex which we believe was due to provisioning. The top- line growth was largely due to higher VIP volume by 17% with market share improving to 47% from 42% as well as better luck of rolling chip win improving to 3.4% from 2.9% previously. As such, 4Q18 adjusted EBITDA fell 10% to SGD286.0m from SGD318.8n previously. Meanwhile, impairment on trade receivable jumped to SGD35.6m from SGD12.9m in 3Q18.

Business volume recovery looked sustainable. 4Q18 core profit rose 3% from SGD148.6m which was on the back of 10% hike in VIP volume to c.SGD6.05b with its market share expanding to 47% from 41% while rolling chip win improved to 3.4% from 2.7% previously. YTD, FY18 core profit leapt 18% from SGD648.1m on the back of 6% hike in revenue. At adjusted EBITDA level, FY18 earnings rose 7% to SGD1.23b from SGD1.15b. This was attributable to significant improvement in business volume with rolling chip volume rising c.20% over the year.

All eyes on Japan. Since the Japanese Diet enacted the Integrated Resorts (IR) Implementation Bill last July, so far three prefectures, namely Osaka, Wakayama and Nagasaki have plans to apply to host casino resorts. GENS has registered companies in Osaka and Yokohama and raised JPY20b of Samurai Bond in October 2017. According to news reports, there are 17 international IR operators indicating their interest to bid for one of the three IR license in Japan. For now, it is still too early to gauge the potential outcome of the bidding process which expected to take place in 2H19. Meanwhile, management is cautious over the Singaporean market in 2019 given the uncertainty of economic environment, although business volume has seen improvement for nearly two years and should be sustainable.

Maintain GENTING’s call for now. We are keeping our OUTPERFORM call, price target of RM7.55/share, which is based on 3-year mean discount of 38.5% to SoP of RM12.24, and earnings estimates for GENTING unchanged for now, pending the release of its 4Q18 results next week. Risks to our call include weak business volume and poorer luck factor.