Target price Increased from 1.23 SGD 1.52
Closing price September 20, 2013 SGD 1.45
Stock is now pricing in more realistic earnings estimates at undemanding valuations
Action: Upgrade to Neutral; Street expectations more realistic
Following a 40% cut in street FY13F EBITDA estimates since 2012, we feel that our revised FY13/14F EBITDA estimates of S$1.26bn/1.4bn are a much more realistic assessment of Singapore’s baseline gaming revenue potential, taking into account a volatile win % and seasonal fluctuations. With Singapore tourist arrivals moderating to single digits (YTD arrivals up 8% y-y), and this being reflected in Sentosa traffic, we forecast a mid-high single digit growth in RWS’s top-line. We argue that our and consensus earnings have limited downside risks now, and this should support the share price at current levels. We tweak our FY13F/14F EBITDA estimates by -7%/+5% to build in a weak performance in 1Q13F due to a lower win rate. However, we now value GENS at mid-cycle, as we no longer see a reason for it to trade at a discount given limited earnings downside. We raise GENS to Neutral, with a TP of S$1.52/share (5% upside).
Valuation: Target 12.5x adj FY14F EV/EBITDA, historical average
Following a transfer of coverage, we ascribe a 12.5x adj multiple to FY14F EBITDA to value GENS, which is its historical average. This implies a 25% discount to Macau-listed names’ average multiple. Macau stocks have seen a re-rating driven by mass market volumes, which are unlikely to occur in Singapore, and are additionally supported by better yields, RoE.
Catalysts: Upside possible through overseas ventures (eg Japan)
With Singapore’s market maturing, upside in GENS’s earnings is possible either through a sharp upswing in VIP volumes / win rate (difficult to forecast) or a deployment of its huge cash balance in overseas ventures, like Japan, where there are uncertainties on timing and competition.
Publish date: 24/09/13