Genting Singapore - DBS Research 2016-11-24: Double up

Genting Singapore - DBS Vickers 2016-11-24: Double up GENTING SINGAPORE PLC G13.SI

Genting Singapore - Double up

  • Ample capacity to raise dividends as GENS becomes an attractive yield stock.
  • Redemption of S$2.3bn worth of perpetual securities expected in 2017.
  • But still in strong position to bid for Japanese casino.



Potential doubling of dividend to trigger further re-rating. 

  • We maintain our BUY call on Genting Singapore (GENS) with a revised TP of S$1.15. 
  • Based on our analysis of GENS's cashflow generation and net cash of c.S$3.7bn, balanced against the redemption of its perpetual securities and potential bid for a Japanese casino, we estimate that GENS has the ability to increase its dividend to 6 Scts per annum up (translating to a 6.3% yield) from our FY15F DPS 3 Scts. 
  • We believe the positive market response following the declaration of a 1.5-Sct interim dividend will encourage GENS’s management to return more cash back to its shareholders. This in turn should continue the rerating post the 3Q16 results.


BUY ahead of earnings recovery in FY17. 

  • Following two tough years, we believe now is the opportune time to buy into a highly cash-generative business in a two-player oligopoly. We believe 2017 will mark a recovery in earnings (22% jump in adjusted EBITDA) due to 
    1. recovery in VIP volumes as volumes bottom out this year (we have penciled in a 3% improvement), 
    2. normalising VIP win rate to the 2.85% theoretical rate from c.2.6% in 9M16, and 
    3. easing of bad debts given GENS’s more selective and conservative credit policy over the past year.


Still on depressed valuations. 

  • Despite the recent rally, GENS still offers compelling value, as it trades at 10.6x FY17F EV/EBITDA, which is below –1SD of its mean of 10.9x. In addition, it trades at a c.30% discount to its Macau peers on an EV/EBITDA basis which close to -1SD of its mean EV/EBITDA differential. 
  • With increasing dividends, earnings turnaround in sight and potential Japanese casino in the medium term, we believe GENS can rerate closer to its average EV/EBITDA multiple of 13.1x.


Valuation

  • As GENS is expected to increase dividends, thereby optimising its balance sheet, we raise our DCF-based TP to S$1.15 from S$0.91 as we impute a lower beta of 1.0x from 1.05x and increase the target gearing to 30% from 12% previously. 
  • Our valuation excludes any Japan casino.


Key Risks to Our View

  • Decline in VIP and mass businesses. The key risk to our positive view is a slower-than-expected recovery or decline in GENS’s VIP and mass divisions.




Mervin SONG CFA DBS Vickers | http://www.dbsvickers.com/ 2016-11-24
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.15 Up 0.910




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