Genting Singapore -
Entering North China market
GENS’s US$2.2bn investment in an IR in Jeju Korea is in line with our view that the Genting group is aggressively venturing into new markets, one of the key themes in our 2014 Gaming Navigator and a key catalyst. Given its S$4.3bn in cash, GENS still has the balance sheet strength to follow up on its Japan interests. Our FY13-15 EPS forecasts are unchanged but we raise our RNAV-based target price by S$0.o9 to factor in the NPV of the Jeju IR (15% ROCE). We maintain our Add rating.
Taking a 52% stake in LJDC. GENS has entered into a shareholders agreement with Landing International Development Ltd (LIDL, 582 HK) to inject S$194.2m (S$97.1m in new shares and S$97.1m via a shareholder loan) into Landing Jeju Development Co. (LJDC). LJDC was established by LIDL to own, develop, manage and operate an integrated resort (IR) in Seogwipo City, Jeju, Korea. Following the capital injection by both GENS and LIDL, LJDC will have a paid-up capital of S$194.2m and shareholder loans of S$194.2m.
GENS and LIDL will each own 50% of LJDC
GENS will operate LJDC’s gaming business. GENS has also entered into a subscription agreement to subscribe to 5% of LIDL’s new shares for S$39.8m or HK$0.30 per share, at a 50% discount the prevailing share price. This will bring its effective stake in LDJC to 52%. Both the shareholders and subscription agreements are subject to all regulatory approvals in Korea being obtained by 28 Mar 2014.
What We Think
Low US$3.6m capex per table. The Jeju IR will cost US$2.2bn and will offer 800 tables and 2,800 rooms. It is expected to begin operations in 2017. This translates into a capex per table of US$3.6m, which is well below the Macau average of US$5.7m and Singapore average of US$8.3m. The relatively low gaming tax of 20% and low capex per table hurdle rate are reasonable, given that only foreigners are allowed into Jeju casinos at the moment.
There are 17 casinos in Korea but only the Kangwon Land casino is accessible to Koreans. Eight of the 17 casinos are located on Jeju Island. Despite the competition on Jeju, the casinos are small and have only been targeting the VIP segment from Northern and Eastern China.
What You Should Do
We are positive on the deal. GENS will be strategically positioned to penetrate the northern China market, while still open to opportunities in Japan. The recent share price weakness is a good buying opportunity.
Publish date: 10/02/14