Genting SP

Kim Eng on 16 Apr

More upbeat. Resorts World Sentosa’s (RWS) VIP volume likely troughed in 4Q11 but will recover going forward. The two new junkets may not add greatly to VIP volume but more and larger junkets may be approved next year. The S$2.5b of perpetual bonds (PBs) may be for a Mongolian casino soon. We trim our earnings estimates by 22-24% to account for lower VIP volume and the PBs. Maintain Buy on Genting Singapore (GENS) with the TP cut by 5% to S$2.00.

1Q12 VIP volume to be poor before recovering. We discovered that the Singapore VIP volume, and hence, gross gaming revenue (GGR), could be correlated to the PMI with one quarter lag. This implies that the Singapore VIP volume troughed in 4Q11 and would revert to YoY growth from 2Q12 onwards. Recovery will be aided by the 194-room Equarius Hotel and Beach Villas, which opened in February and boosted RWS’s VIP room inventory by threefold.

Junkets unlikely to be meaningful this year. Our channel checks indicated a lack of enthusiasm for the two new junkets, as many of their clients are ASEAN-based and overlap with RWS’s. Mr Huang may have a Macau junket licence, but his presence there is small. We are told that there were large Macau junkets in the 12 rejected applications and they will reapply next year with more disclosures and transparency.

Mongolia first? After issuing S$1.8b in PBs on 12 March, GENS intends to issue another S$500-700m in PBs at a similar rate of 5.125% on 18 April. We are told that they are for a Mongolian casino. GENS incorporated four Mongolian companies in 4Q11. It also said during its 4Q11 earnings call that it was studying investments of USD0.5-4b. Interestingly, the second offer of PBs will likely raise about USD500m.

Buy with TP cut to S$2.00 (-5%). We trim our EBITDA estimates by 11-12% to account for flat VIP volume this year and core net profit estimates by 22-24% to account for S$2.5b in PBs. Our DCF-based TP of S$2.00 is only 5% lower vis-à-vis our EBITDA estimates as we now assume recurring capex of S$150-200m pa (S$300m pa previously).