Genting SP

Genting SP: DBSV downgrades to Hold from Buy and slashes TP to $1.17 from $2.05. Note of weak quarter, as MBS’ 2Q12 EBITDA contracted 19% yoy, 30% qoq to US$330m ($534m) as net rev -6% yoy, 18% qoq given declines in VIP rolling chip (-6% yoy, -10% qoq) and win rate (2.4% vs 2Q11’s 3.0%, 1Q12’s 3.6%). Look forward to a stronger 2H12. GENS’ 2Q12 results will likely be unexciting, but 2H12 should be stronger with the completion of Western Zone by 4Q12. House cut 2012-14F earnings by 9-12% to factor in 8% contraction in rolling chip (from +5%; 1Q12: -13% yoy), lower net win/slot (US$480 from US$550) and higher receivables provision. Overall, downgrade GENS to Hold from Buy, with revised TP of $1.17 (pegged to Macau sector average of 8x 2013F EV/EBITDA vs 12x previously given slower growth and multiples contraction). While partly in the price, there could be further negative knee-jerk reaction from: 1) Policy risk - public consultation on proposed amendments to Casino Control Act will end on 6 Aug & tabled in Parliament by year-end; and 2) ) Potential full-blown tussle against Crown for Echo which would require US$1.5-3.5b to bring Genting Group’s 10% stake to 50%-100% (vs GENS net cash of US$2b + US$1.3b operating cashflows p.a.).