Genting Singapore - Big Ambitions In The Land Of The Rising Sun
- Genting Singapore has signalled its intention to go all out on Japan once the local authority firms up the development plan. This may involve putting in bids at more than one location, as the group is looking to mark its presence in the next holy grail of the global gaming market.
- On its existing operations, bad debt provisions have further stabilised while both mass and VIP luck factor held stable in 4Q16.
- Maintain NEUTRAL with our DCF-based TP revised to SGD0.93 (from SGD0.82, 5% downside).
All out on Japan.
- During the analyst briefing, management announced its intention to go all out on Japan once the local authority firms up the development plan.
- COO Mr Tan Hee Teck highlighted that the group would participate in bidding for all potential locations. We are not entirely surprised, given that the Japanese gaming market is widely seen as the next holy grail amongst the global casino operators.
- Genting Singapore estimates that setting up an integrated resort in the land of the rising sun could cost USD7-12bn.
- Genting Singapore’s 4Q16 impairment on receivables improved further to SGD38.9m vs 3Q16’s SGD50.2m.
- Management expects the current level to be the new normal going forward as its outstanding receivables closed at a low of SGD197.7m vs SGD646.4m in 4Q15. We believe this is achievable, owing to its continued efforts in credit control.
- On the downside, however, this would likely impede its VIP growth as management reiterates its risk-averseness in extending credit for now.
Forecasts and risks.
- We upgrade our FY17-18F EPS by 8-12% as we lower our bad debt provision by 11-15% in view of the improving book quality.
- Key risks include the volatility in win rates and potential weakness in tourist arrivals to Singapore due to the strengthening of the SGD against regional currencies.
- A final DPS of 1.5 cents was declared, with its 2016 DPS now totalling 3 cents (vs 1.5 cents in 2015) at an implied payout ratio of 95.8%.
- While management has not committed to a dividend policy going forward, we believe this is likely the new benchmark going forward, with its Resorts World Sentosa operations having matured and taking into account its current cash pile of over SGD5bn (or SGD0.42 per share).
- Maintain NEUTRAL with our DCF-derived TP revised to SGD0.93 (from NI (%) 19.0% 23.3% 16.8% SGD0.82) following our earnings revision and to capture its latest net cash position.
- While we expect to see further improvements in its bad debt provisions over the medium term, the dearth of re-rating catalysts for both the VIP and mass market volumes prompts us to keep our cautious stance going forward.