STI : 3,124.38
(Upgrade from Hold)
Price Target: 12-Month S$ 1.75 (Prev S$ 1.64)
• Earnings recovery from stronger tourist & MICE visitors and steady expansion in rolling chip
• Potential M&A and Japan gaming liberalization can be strong re-rating catalysts
• Valuation lagging behind regional peers. Upgrade to Buy with revised TP of S$1.75
Better days ahead. We expect GENS to deliver a strong 20% rebound in FY14 EBITDA driven by: a) Normalisation of VIP win rate (vs unlucky 1H13); b) Continual expansion in rolling chip driven by sustainable global recovery & delay in US quantitative easing tapering; and c) Stronger mass drop with increased tourist arrivals & healthy MICE pipeline. This should help mitigate impact of softer local visitorship and rising cost pressures from restrictions on foreign labour. We tweaked our 2014-15F EBITDA by 3-4% to factor in stronger casino patronage.
New ventures to diversify earnings & drive growth. GENS should be getting closer to finalising its potential M&A in Asia by next year which will help put its huge S$1.7b net cash to good use (minimum IRR target of 12%). Potential Japan gaming liberalization by 1Q14 could stir up interest as GENS is widely seen as a front-runner given its strong track record in integrated resorts and Japan possibly emulating Singapore’s gaming regulations (e.g. entry fees for locals, attractively tiered-gaming taxes).
Attractive valuation. GENS has been a major laggard for the past 2 years, trading at 11.6x 2014F EV/EBITDA vs Macau gaming sector average of 15.5x. With earnings recovery and potential catalysts in the horizon, we upgrade GENS to Buy with revised target price of S$1.75 - valuing RWS at 13x 2014F EV/EBITDA (15% discount to Macau sector average of 15.5x given the latter’s stronger growth prospects).
Publish date: 06/12/13