Tuesday, April 16, 2013
Genting Singapore: Neutral For Now (RHB)
Genting Singapore: Neutral For Now
(NEUTRAL, S$1.46, TO: S$1.47)
Following our recent conversation with Genting Singapore’s management, our NEUTRAL call is maintained with our FV tweaked slightly to SGD1.47, pegged at 10x FY14 EV/EBITDA. FY13 and FY14 earnings forecasts are cut by 12.4-13.6%. The stock’s key re-rating catalyst is the potential passing of a gaming bill in Japan.
Casino growth to come with higher default risks. We expect contribution from the group’s casino operation to grow steadily by mid- to high-single digits.
This will hinge on a continued influx of tourist arrivals in Singapore, which welcomed more than 13m visitors in 2011. We believe the fast-growing number of Chinese tourists will propel RWS’ growth, given that these visitors make up half of Genting Singapore’s VIP accounts. However, the increase may also potentially lead to greater default risks – as the group had witnessed in FY12, when its impairment on receivables surged 18.1% y-o-y to SGD143.0m – especially if the global economic recovery slows. For now, we are forecasting for impairment on receivables of SGD140m p.a. from FY13F to FY15F.
Nothing concrete in Japan yet. Progress on the group’s potential entry into Japan’s gaming market is largely status quo for now pending more material developments in relation to legislation governing domestic casinos. Rumour has it that the proposed gaming bill may be submitted to parliament by the end of this month. The current legislative session ends in June. We expect more new developments to unfold in 2H this year. Meanwhile, sources suggest that the pachinko industry has been chalking up JPY20trn-JPY30trn in income every year. Given the size of this market, we believe Genting Singapore is likely to rope in a domestic partner with local knowhow to minimize the execution risks.
Revising earnings forecast. Following an internal coverage reallocation, we are revisiting and revamping our earnings model on the stock. This leads to 12.4%-13.6% cuts in our FY13F and FY14F net profit forecasts, as we trim our target win rate as well as incorporate potential losses from its newly-opened Marine Life Park. We also take this opportunity to introduce our FY15F net profit forecast of SGD965m.
Publish date: 14/04/13