Genting Singapore

CIMB Research, Feb 10

GENTING Singapore's US$2.2 billion investment in an integrated resort in Jeju, Korea, is in line with our view that the Genting group is aggressively venturing into new markets, one of the key themes in our 2014 Gaming Navigator and a key catalyst. Given its S$4.3 billion in cash, Genting Singapore (GENS) still has the balance sheet strength to follow up on its Japan interests.

Our FY13-15 EPS forecasts are unchanged but we raise our RNAV-based (revalued net asset value) target price by S$0.09 to factor in the NPV (net present value) of the Jeju IR (15 per cent return on capital employed). We maintain our "add" rating.

GENS has entered into a shareholders agreement with Landing International Development Ltd (LIDL) to inject S$194.2 million (S$97.1 million in new shares and S$97.1 million via a shareholder loan) into Landing Jeju Development Co (LJDC). LJDC was established by LIDL to own, develop, manage and operate an integrated resort (IR) in Seogwipo City, Jeju, Korea.

Following the capital injection by both GENS and LIDL, LJDC will have a paid-up capital of S$194.2 million and shareholder loans of S$194.2 million. GENS and LIDL will each own 50 per cent of LJDC. GENS will operate LJDC's gaming business. GENS has also entered into a subscription agreement to subscribe to 5 per cent of LIDL's new shares for S$39.8 million or HK$0.30 per share, at a 50 per cent discount to the prevailing share price. This will bring its effective stake in LDJC to 52 per cent.

Both the shareholders and subscription agreements are subject to all regulatory approvals in Korea being obtained by March 28, 2014.

The Jeju IR will cost US$2.2 billion and will offer 800 tables and 2,800 rooms. It is expected to begin operations in 2017. This translates into a capex per table of US$3.6 million, which is well below the Macau average of US$5.7 million and Singapore average of US$8.3 million.

The relatively low gaming tax of 20 per cent and low capex per table hurdle rate are reasonable, given that only foreigners are allowed into Jeju casinos at the moment.

There are 17 casinos in Korea but only the Kangwon Land one is accessible to Koreans. Eight of the 17 are located on Jeju Island. Despite the competition on Jeju, the casinos are small and have been targeting only the VIP segment from Northern and Eastern China.

We are positive on the deal. GENS will be strategically positioned to penetrate the northern China market, while still open to opportunities in Japan. The recent share price weakness is a good buying opportunity.

ADD