Genting Singapore

DBS on 28 March 2012


WE came back positive on Resorts World Sentosa's (RWS) new offerings after a recent site visit with a group of clients. We found the Maritime Experiential Museum educational and the Transformer ride an exciting addition to Universal Studios (USS). Despite being a weekday just after the school holidays, the crowd was healthy; we understand USS visitor arrivals in December peaked at 27,000 per day versus a Q3 2011 average of 9,000.


Hotel occupancy was high with room rates from S$480 onwards. We were impressed with the spacious rooms at 172-room Equarius Hotel and 22 beach villas (complete with private jacuzzis and pavilions!) at the serene Western Zone, which should appeal to higher-end VIP patrons and compete with Marina Bay Sands. Construction for remaining 13 villas, marine life park and water theme park is in advanced stages, on track for completion in Q2-Q4 2012, while USS could see a new ride in Q3 2012.

While it is still early to assess the positive impact, we estimate every one per cent increase in rolling chip from junkets could boost Genting Singapore's earnings by up to 0.45 per cent (assuming 1.5-1.6 per cent of rolling chip junket commission, similar to Genting Malaysia). Even if junkets cannibalise the entire Malaysian direct VIP segment (assuming 25 per cent of VIP volume) - which is highly unlikely - rolling chip would need to increase by 14 per cent to make up for the lower margin.

We understand that the two approved junkets currently operate in Malaysia, hence Genting Singapore can leverage on the Genting Group's long-standing relationship. We do not discount the possibility of some cannibalisation of Genting Malaysia's high-roller business, which will be to the group's advantage, given Singapore's lower VIP gaming and corporate taxes.

Even after the recent re-rating, Genting Singapore is still trading at an undemanding 9.6 times FY2013 enterprise value/Ebitda multiple versus big-cap Macau peers' 12.0 times. There could be upside to our and street's estimates from junket operations and potential ventures outside Singapore worth US$1.5 billion-US$10 billion. (Competition for new markets will be intense, but Genting Singapore can leverage on its strong balance sheet, healthy operating cash flows, strong track record and global reach.) Reiterate 'buy' with TP of S$2.06.
BUY