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

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