Price Target : 12-Month S$ 1.75
Hedging exposure to Korea
•Foray into Korea to gain foothold in North Asia, hedging for potential gaming liberalisation
•Potential catalysts from strong earnings recovery and Japan’s gaming liberalisation (seen as front-runner)
•Reiterate BUY and S$1.75 TP
Much awaited new venture. The US$2.2bn Resorts World Jeju (RWJ) will be GENS’ first foray into the North Asian gaming market. The development is a 50:50 JV with Landing International Development, the largest property developer in Anhui province in China.
The IR will be similar to RWS (casino, luxury hotels, retail mall, themepark), but much bigger at 568 acres as it includes property development (villas & apartments) which makes it self-financing. The JV partners will only need to fork out US$300m collectively (excluding land cost), qualifying RWJ for a casino licence. While applications from Caesars-Lippo and Universal Entertainment were rejected recently, we expect minimal issues for RWJ given GENS’ strong balance sheet and execution track record.
Why Korea? GENS is positioning for potential liberalisation should Korea react to Japan opening up its gaming market. Locals are barred from entering casinos except for Kangwon Land (exclusive rights up to 2025). Despite being located 3 hours from Seoul, Kangwon Land is the most visited with the largest market share (>50%) of Korea’s US$2.2bn gross gaming revenue. Jeju Island is attractive as it welcomes >1m China visitors p.a. and is rising rapidly given special visa-free entry (max 30 days stay, 72 hours into other provinces). While competition is rising as more global operators eye Korea, new supply will likely be concentrated in Incheon (except for US$3.2bn Berjaya Jeju Resort). Korea currently has 16 foreign-only casino-hotels which generate US$930m p.a., with 8 on Jeju Island (mainly small casinos).
Reiterate Buy and S$1.75 TP. Given limited details, we are unable to ascertain RWJ’s financial impact (opening in phases by 2017) but are comforted by GENS’ continual investment in its core competencies, >12% ROI (internal hurdle rate) and small investment outlay (easily funded by GENS’ US$1.4bn net cash). We look forward to bigger ventures ahead (GENS is seen as front-runner for Japan given its strong IR track
Publish date: 10/02/14