STI : 3,186.62
Price Target : 12-Month S$ 1.42
Waiting for re-rating catalyst
• RWS may see similar volume expansion like MBS
• Don’t hold your breath for Japan yet
• Maintain Hold and TP of S$1.42
MBS: Volume growth dampened by lower margins. 3Q13 EBITDA grew 2% y-o-y (hold-adjusted) to US$374m/S$463m driven by higher volumes across the board (VIP +17%, mass +2%, slots +6%). VIP win rate has finally normalised to 2.85% after 5 unlucky quarters. EBITDA however fell 6% q-o-q (hold-adjusted) due to lower rolling chip (-4%) and mass drop (-1%). Margins also compressed by 3ppts y-o-y, 2ppts q-o-q to 48%, due to higher expenses to attract foreign premium mass (visitation +46% y-o-y), and weaker non-gaming revenue.
RWS: Similar trends? We expect GENS’ upcoming 3Q13 results to emulate MBS’ with volume growth across the board and potential normalisation of VIP win rate (2Q13: 2.5%). RWS’ EBITDA margin should continue to recover as the Western Zone ramps up. More details may be unveiled on potential M&A in Asia over the next 6-12 months.
Japan likely later rather than sooner. Las Vegas Sands shares GENS’ view that Japan’s gaming liberalisation may take a while longer (new legislation to be passed in Dec 2013/Jan 2014 with details a year later). It remains to be seen how profitable a Japan IR will be (> US$6bn capex with construction cost rising en-route to 2020 Olympics) without any clarity on gaming taxes. Japan will likely emulate Singapore’s model in allowing locals to gamble for a fee and focus on convention centres to draw tourists. While bidding competition will be stiff (2016 at the earliest), GENS and Las Vegas are front-runners due to their strong IR track record. LVS is also interested in South Korea which will be re-opening IR bids at its Free Economic Zones (lifting of restrictions on locals gambling however remains elusive).
Maintain Hold & TP of S$1.42. GENS growth is under threat from cautious lending to VIPs, slower local visitation due to stricter restrictions, softer tourist arrival growth, rising cost pressures from restrictions on foreign labour and tight hotel room supply. Within the regional gaming space, we prefer Macau and Philippines
stocks given stronger growth potential and lower regulatory risks.
Publish date: 18/10/13