SINGAPORE (Nov 16): OCBC is downgrading Genting Singapore to a “sell” with 69 cents fair value as its 9M results only met 38% of its FY estimates as its VIP segment continues to stay weak.

Genting Singapore reported 3Q15 revenue easing 1% to $636.1 million from a year ago, as its gaming business continued to stagnate.

OCBC estimates that core earnings would have been a loss of $10.1 million excluding perpetuals. Including perps, net profit came in at 62% lower at $37.2 million.

In a Friday report, lead analyst Carey Wong says Genting Singapore continues to face a very challenging VIP market, and has further impairment loss on trade receivables of $92.5 million, bringing the YTD total to nearly $225.3 million.

Management explained that the impairment made was on credit granted in 3Q or 4Q of 2015, and these impairments should start to come down going into 2016 as it has tightened its credit policy and only extending it to better quality players.

“But without the benefit of a collaborative partnership in another gaming jurisdiction with a high volume VIP premium business, GS highlights the disadvantage in its marketing efforts,” says Wong.

As for its Korean and Japanese ventures, management notes that Jeju Island project is progressing according to schedule, although there was little clarity on the progress of the Japanese Parliament passing the Casino bill there any time soon, although management remains "sanguine" about the prospect of the passage of this bill.

“To account for the more challenging VIP outlook, we have pared our earnings estimates for FY15 and FY16 by nearly 40%. Our DCF-based fair value also drops from S$0.81 to S$0.69. Downgrade to SELL until we see better clarity in Japan,” says Wong.

Genting Singapore is down 3.9% at 75 cents.