Navigating Singapore ~ Gaming Sector - Overweight
Look forward to dividends and potential Japan IR
- Genting Singapore (GENS SP, Add) has done well to shift its business focus from the VIP gaming segment to the mass and premium mass segments in the face of headwinds from China’s anti-corruption drive.
- GENS has embarked on a restructuring of its business, including deploying staff from VIP to mass, removing redundancies, converting excess space into additional hotel rooms, refreshing and upgrading its hotels and exhibits to cater to a wider audience, and introducing targeted events and initiatives to draw in a new crowd. These efforts have paid off, with 3Q16 adjusted EBITDA margin reaching the highest level in nine quarters.
- We expect 3Q16’s hold-normalised adjusted EBITDA to be the baseline level going forward as the tail end of cost cuts and potential upside from efforts to draw in mass and premium mass visitation come through.
We see two key catalysts ahead for GENS:
- In the near term, its commitment to pay higher dividends remains the key supporter of its share price, as this is the first time that GENS has declared its intention to return a higher proportion of cash generated from Resorts World Sentosa (RWS) to shareholders.
- Positive news-flow coming out of Japan on the casino bill could be a further rerating catalyst, as GENS is likely to be a frontrunner for a casino bid given its strong balance sheet and intention to model its Japan casinos after Singapore’s integrated resorts (IR) model.
- Key risks to our positive outlook on the gaming sector include:
- a slowdown in tourist arrivals to Singapore, especially from the key markets of China, Indonesia and Malaysia, and
- no casino bill being passed in Japan by 2017.