Genting Singapore PLC - All in Order But In The Price
Publish date: Mon, 14 Oct 15:17
Genting Singapore’s share price have soared 12% from its bottom in late Aug when it plunges after a disappointing 1HFY13 results. We believe the increase in share price was on the back of Japan’s victory in hosting the 2020 Olympics.
To recall our gaming report written on 10 Sept ’13 titled “Japan to Host Olympics 2020”, the win could potentially expedite its gaming liberalisation process as it needs to add hotel capacity and entertainment venue to cater for visitors.
To date, Reuters reported lawmakers are expected to submit an initial bill to parliament by year-end and if it passes through, solid regulations have to be disclosed within 2 years. With that, the first casino resort would open in Japan by 2019, just in time for Olympics.
Foreign ventures aside, GenS’ gaming operations are believed to be on a recovery mode with improving rollingchip volume in the recent quarters (Figure 1). We expect the momentum to maintain but at lower quantum due to higher base.
The group have also re-structured and tailored packages and programs for the mass market by geographical regions in order to improve its mass revenue, with hopes to lessen GenS’ earnings volatility from VIP segment.
Onto Gen’s non-gaming operations, there are some additional to RWS’ attractions. “Dolphin Island” was opened on 30 Sept ’13, offering a range of programmes that allows visitors the opportunity to get close with its dolphins.
Another attraction is expected to launch next month, a musical known as “Light Seeker”. The musical will only be a 4 months-event starting from 24 Nov 13 to 23 Mar 14.
EBITDA-wise, margins have stabilized in the past few quarters at circa 45%, except 1QFY13 (due to record low win rate of 2.12%). As rolling-chip volume’s growth momentum maintains, we believe margin would improve further (assuming win rate stands at above 2.8%) as other expenses remain relatively stable.
1) Regulatory risk;
2) Further decline in RWS’ market share to MBS;
3) Weaker-than-expected hold percentage in the VIP segment;
4) Worsening in economic condition; and
5) Failure in casino license renewal.
Positives – (1) Duopoly industry; and (2) Lower tax rates compared to regional peers.
Negatives – (1) Highly regulated industry; and (2) Earnings from gaming operations are highly dependable on luck factor and hold rates.
Although GenS’ relative valuation vs. Macau peers seemed relatively reasonable at 9.3x FY14 EV/EBITDA (about 35% discount) and 20.5x FY14 P/E (15% premium), absolute valuation does not look appealing and we believe it has fully reflected the fundamentals.
Thus, coupled with recent share price appreciation, we downgrade GenS to HOLD with unchanged TP of SG$1.49 based on 9.5x FY14 EV/EBITDA multiple.
Source: Hong Leong Investment Bank Research - 14 Oct 2013
Publish date: 14/10/13