Genting Singapore - CIMB Research 2016-06-14: Closer look at Jeju

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GENTING SINGAPORE PLC G13.SI 

Genting Singapore - Closer look at Jeju

• Resorts World Jeju (RWJ), set to open progressively in 2017-19, could contribute S$145m (US$107m) recurring net profit p.a. to GENS (50% stake), by our estimate.
• Unlike the rest of South Korea, Jeju has a unique visa-free policy for Chinese tourists, making it a prime destination for visitors from North and East China.
• Concerns about high bad debt charges and possible injection of RWLV could create buying opportunity ahead of consensus earnings upgrades for RWJ.
• Maintain Add. We raise our FY17-18 EPS by 15-21% and our SOP target price rises to S$0.89 after factoring in contribution from RWJ.

Resorts World Jeju to open progressively in 2017-19

• RWJ is a US$1.8bn development built on 2.5m sq m of land in Southwest Jeju. It is a 50-50 JV between GENS and Landing International. 
• RWJ will be the first integrated resort (IR) on the island, with a 10,000 sq m foreigners-only casino, a Myths & History Theme Park and a 70,000 sq m retail complex. Its 1,518 residential units are expected to net US$0.9bn in sales, which would partially fund the rest of the development. 
• We factor in residential sales starting in FY17 and contributions from IR in FY18 onwards.

Prime destination to target Chinese tourists

• Jeju is only a 2-hour flight from the major cities in Northeast China (including Shanghai and Beijing) that have total population of above 600m. Unlike the rest of South Korea, Jeju has a unique visa-free policy that allows visitors to stay for 30 days. 
• In 2010, the government introduced a policy that grants permanent resident status to foreigners who purchase property worth at least W500m (US$0.4m) in Jeju; 98% of the applicants were Chinese. Jeju received 3.3m international visitors in 2014, of which 86% were Chinese.

RWJ could add S$145m p.a. to GENS net profit, by our estimates

• Our base case estimates that GENS’s 50% stake in RWJ would add S$145m in net profit p.a. when completed (excluding residential sales). As there are few details on RWJ available, we assume the following based on key metrics of comparable projects: 
  1. 370 mass gaming tables, 
  2. S$6,000 win/table/day, 
  3. 740 slot machines, 
  4. S$600 slot win/unit/day, 
  5. ADR of S$325 at its hotels, 
  6. 85% occupancy, 
  7. average spend of S$45 at its theme park, 
  8. 2.1m theme park visitors/year.

Near-term overhang to provide buying opportunity

• While VIP gaming volumes appear to have stabilised at RWS in 1Q16 (+4% qoq after seven quarters of decline), bad debt charges are expected to stay high until 2H16. 
• Resorts World Las Vegas could be injected into GENS, given its stronger funding position than GENT. This scenario is less than ideal as it would have to pump US$4bn into a no-growth market. 
• These concerns could put near-term pressure on share price ahead of potential consensus earnings upgrades for RWJ, providing buying opportunity.

Maintain Add, factoring in contribution from RWJ

• We raise FY17-18 EPS by 15-21% for RWJ contributions, and our SOP target price rises to S$0.89. 
• GENS trades at 9x FY16 EV/EBITDA, 2 s.d. below historical mean. 
• As its valuations tend to track GGR, this implies that the market expects RWS’s GGR to fall below S$600m per quarter, a trough level only seen once and is unlikely to be repeated given RWS’s turnaround in 1Q16. 
• Maintain Add, with catalysts from market share gains at RWS and earnings upside from RWJ. 
• Risks include sustained high bad debt charges.

Jessalynn CHEN CIMB Securities | Kenneth NG CFA CIMB Securities | http://research.itradecimb.com/ 2016-06-14

CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 0.89 Up 0.86