STI : 3,167.43
Price Target : 12-Month S$ 1.75
On a rebound
• Earnings recovery from stronger tourist and MICE visitors and steady expansion in rolling chip
• Potential M&A and Japan gaming liberalization could be strong re-rating catalysts
• Valuation lagging behind regional peers. Maintain Buy with TP of S$1.75
Better days ahead.
We expect GENS’ EBITDA to rebound strongly by 20% in 2014F driven by: a) normalisation of VIP win rate (vs unlucky 1H13); b) continual expansion in rolling chip driven by sustainable global recovery and delay in US’ quantitative easing; c) stronger mass drop with increased tourist arrivals and healthy MICE pipeline; and d) ramp up of Western Zone. This should help mitigate the impact of softer local visitors and rising cost pressures from government restrictions on foreign labour. 1Q14 results is also expected to be seasonally stronger driven by Chinese New Year impact.
New ventures to diversify earnings and 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$1.7bn net cash to good use (minimum IRR target of 12%). Potential of Japan’s gaming market liberalizing by 1Q14 could stir up interest (although operator selection will likely take place in 2016 at the earliest) 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).
GENS has been a major laggard for the past 2 years, trading at 11.6x 2014F EV/EBITDA vs Macau and regional gaming sector average of 17.0x and 13.7x respectively. With earnings recovery and potential catalysts on the horizon, we maintain Buy on GENS with target price of S$1.75 - valuing RWS at 13x 2014F EV/EBITDA (discount to Macau sector average given the latter’s stronger growth prospects).
Publish date: 03/01/13