Genting Singapore

Kim Eng on 8 Apr 2013

Two cards up its sleeve - VIP and FISH. GENS remains optimistic on its prospects going forward, especially in the VIP segment, while we are sanguine on potential margin compression from the newly-opened Marine Life Park (MLP). There are significant economies-of-scale in the operation of aquariums that will ensure a quick turnaround. Our 2013 earnings estimates are trimmed by 6% but 2014-15 forecasts are
unchanged as we expect the MLP margin compression to be temporary. Maintain BUY call and SGD1.67 TP on 13.5x 1-year forward EV/EBITDA.

More spring in its step. GENS is confident and we concur that VIP volumes will recover over the next 12-18 months on the recovering Chinese economy and the recently-concluded Chinese leadership transition. We also believe that VIP volumes will be boosted even further by rising CNY deposits in Singapore in the near future following the establishment of Singapore as a offshore CNY clearing hub. We also expect mass market GGR to truly grow this year thanks to a stable SGD and room rates this year.

Marine Life Park concerns likely overdone. Studying three other aquariums, we observe that there are significant economies of scale in operating aquariums. Assuming that MLP incurs long term cash expenses of SGD80m and average ticket price of SGD25, we estimate that it will require average daily visitation of only 8,800 to break even (4Q12: 7,100). Therefore, we trim our 2013 earnings estimates by 6% but leave our post-2013 earnings estimates little changed as we expect the margin compression by MLP to be only temporary.

Maintain BUY call and SGD1.67 TP. As our longer term earnings are relatively unchanged, we maintain our TP of SGD1.67. Our TP implies 1-year forward EV/EBITDA of 13.5x (13x previously). While at a slight
premium to the Macau gaming sector average of 12x, we believe that this is justifiable as (i) there is upside potential to VIP volumes due to the establishment of Singapore as a CNY hub and (ii) GENS is the only pure exposure to the Singaporean gaming industry.