Genting Singapore - OCBC Investment 2016-11-14: Disposal Of 50% Stake In Jeju JV

Genting Singapore - OCBC Investment 2016-11-14: Disposal Of 50% Stake In Jeju JV GENTING SINGAPORE PLC G13.SI

Genting Singapore - Disposal Of 50% Stake In Jeju JV

  • Consideration of US$420m.
  • Risks remain to Japan opportunity.
  • Downgrade to SELL.

Disposal of stake in Jeju JV for US$420m 

  • Genting Singapore (GS) has entered into a conditional sale and purchase agreement to dispose of its 50% interest in the Jeju JV for US$420m. 
  • The disposal is expected to complete in 1Q17, conditional upon counterparty Landing International Development obtaining shareholders’ approval for the disposal. 
  • The aggregate consideration represents a 10% premium to the group’s contributions to the JV Co.

Refocusing resources

  • GS has cited its intention to focus on growing within its home base in the near-term. From our understanding, GS is also concerned with recent developments regarding the strength of Chinese demand in South Korea, particularly the arrest of Crown employees and the investigation into Grand Korea Leisure. 
  • In addition, GS expects Japan’s casino bill to be enacted in the near future and anticipates that significant resources will need to be devoted to position the group as a strong candidate for the bidding process.

Japan – a binary outcome 

  • We find Genting’s move to dispose of its Jeju stake aggressive, and see it as a premature exit from one key area of growth. 
  • There still remain key risks to its pursuit of the Japanese casino license: 
    1. the first casino bill in Japan has yet to be debated and passed 
    2. the second bill may allow only foreigners and not locals to enter the casino, though we would find this unlikely 
    3. even if the above is satisfied, Genting Singapore still has to beat several other international casino players such as LVS to win the license. 
  • The current Japanese Diet session is to end 30 Nov 2016. Given the interim dividend announced last quarter, we find the probability of a special dividend following the disposal to be low. 
  • In the meantime, we note that news on the Japanese casino bill will likely impact trading interest in the stock. 
  • Incorporating the sale of GS’s Jeju JV stake while increasing our terminal growth rate from 3.5% to 4.0% to account for potential growth opportunities, our fair value drops from S$0.81 to S$0.75; downgrade from Hold to SELL.

Deborah Ong OCBC Investment | http://www.ocbcresearch.com/ 2016-11-14
OCBC Investment SGX Stock Analyst Report SELL Downgrade HOLD 0.75 Down 0.810