Rating: Buy (price target: S$1.69)
We expect Genting Singapore (GENS) to generate strong EBITDA growth of 28% YoY in 2014, primarily driven by 10% YoY growth in VIP rolling chip volume and low-base effect (the H113 hold of 2.1-2.5% was below the theoretical hold of 2.85%), while mass revenue should remain flattish due to continued strict measures on local visitors. VIP rolling chip volume was above expectations in the first nine months of 2013. While lowbase effect has contributed to the strong growth rates, GENS indicated that Resorts World Sentosa (RWS) is attracting new VIP customer interest due to its own marketing efforts. Although it is still risky to extrapolate the strong growth rates into 2014, the increased customer base should support a smoother VIP trend and hold rates going forward.
We expect the newsflow on Japan casino liberalisation to remain positive. A submission of the casino bill to the current Diet session, which ends on 6 December, and the approval of the bill in Q114 should serve strong positive catalysts for the stock. Assuming Japan lifts the casino ban, we estimate the Japan casino opportunity could be worth an additional S$0.0-0.6/share depending on the economic terms. We have not factored in any potential upside for Japan as essential details including tax regime, the number of integrated resorts to be built and the location of the casinos, remain to be seen.
The primary driver of the stock should be gaming revenue trends in Singapore. Specific catalysts include: 1) Japan passing a casino bill (likely in early 2014); and 2) the opening of a hotel in Jurong, which will add 550 rooms, increasing the number of rooms by onethird (mid-2014). This should facilitate growth in foreign mass players.
We value GENS based on a sum-of-the-parts (SOTP) methodology. We target 11x 2014E EV/EBITDA for RWS. This, together with adjusted net cash of S$0.17 per share, implies a fair value of S$1.69 per share for GENS’s equity