Genting Singapore

DBS Group Research on Jan 5 2012

WE expect Singapore's gross gaming revenue (GGR) to hit an impressive US$6 billion in 2011 and US$7 billion in our 2012 forecasts (yet to include potential impact of junkets).
While junkets could lead to potential cannibalisation of the direct VIP segment and lower margins due to commissions, these should be mitigated by stronger volume growth and lower receivable provision/impairment.


Key risks to the sector include slower tourist arrivals (over two in three visitors are foreigners), higher credit risk (given pure exposure to direct VIPs), and deleveraging.
Marina Bay Sands (MBS) has overtaken Resorts World Sentosa (RWS) as the market leader with 52 per cent share of GGR.


But RWS should start catching up soon on the back of: a) ramp-up in slot operations (up 33 per cent to 2,470 machines by end-2011, comparable with MBS); b) higher visitor arrivals with world's first Transformer ride (launched on Dec 3) and potential spin-off from Genting Plantation's Johor Premium Outlets; and c) opening of Western Zone (Maritime Museum launched on Oct 15; 200-room Equarius Hotel and 20 beach villas by early 2012 to attract higher-end VIPs; Marine Life Park & Equarius Water Park by mid-2012).


While MBS is closer to the central business district and stands to benefit from completion of the Circle Line mass rapid transit and International Cruise Terminal in H1 2012, RWS can leverage on its theme parks and Genting Group's 40-year experience in Asean (extensive customer database, good relationships with junkets).
While we prefer Macau stocks for their stronger earnings growth (Sands China & Galaxy are our top gaming picks in the region), Genting Singapore is still the most direct proxy to Singapore's burgeoning GGR.


Valuation is attractive at nine times 2012 EV/Ebitda estimate compared with big-cap Macau casino operators' 12 times, on decent 2011-13 earnings compounded annual growth rate of 8 per cent. Dividend payout, however, will likely be post-2013 due to existing debt covenants.


With strong balance sheet (net cash) and operating cash flows, Genting Singapore is actively looking for new integrated resort opportunities (for instance, in Japan or Korea). We call a 'buy' on Genting Singapore, with a TP of $2.05.
BUY