Genting Singapore - RHB Invest 2016-11-14: Goodbye Jeju For Now

Genting Singapore - RHB Invest 2016-11-14: Goodbye Jeju For Now GENTING SINGAPORE PLC G13.SI

Genting Singapore - Goodbye Jeju For Now

  • Genting Singapore has announced its intention to dispose of its 50% interest in the proposed Resorts World Jeju for USD420m. 
  • We believe the move is intended to consolidate its focus and to bump up its cash coffers in anticipation of potential passing of gaming legislation in Japan. 
  • Maintain NEUTRAL with our TP unchanged at SGD0.82 (7% downside).

Details on the disposal. 

  • Its direct wholly-owned subsidiary Algona Pte Ltd has entered into a conditional sale and purchase agreement with Landing International Development Limited (LIDL) to dispose of its 100% interest in Callisto Business Limited for a consideration of USD420m. 
  • Callisto’s wholly- owned subsidiary, Happy Bay Pte Ltd, owns 50% of Landing Jeju Development, which is currently developing the proposed Resorts World Jeju integrated resort in Jeju, South Korea. 
  • The proposed disposal is expected to be completed by 1Q17, conditional upon approval from LIDL’s existing shareholders. The selling price of USD420m is derived based on an agreed premium of approximately 10% to Genting Singapore’s aggregate contribution to the joint venture at USD380.8m and will be paid in two tranches, with an initial USD220m payable on completion and the balance payable within six months thereafter.

To concentrate on Japan. 

  • We believe the move is intended to consolidate its focus and to bump up its cash coffers in anticipation of the potential passing of gaming legislation in Japan. We note that Japan Prime Minister Shinzo Abe’s Liberal Democratic Party (LDP)-led ruling coalition now commands an overall majority across both upper and lower houses of the parliament following its landslide election victory in July this year.
  • Subsequently in August, three pro-casino officials ie Toshihiro Nikai, Hiroyuki Hosoda and Toshimitsu Motegi were promoted to top spots during the internal reshuffling of the LDP. The trio has recently confirmed their intention to have the gaming bill passed during the current parliamentary session, which ends on 30 Nov. This, coupled with the recent decision by the LDP to extend the maximum tenure of its president to nine years (from six years) – which would then grant Shinzo Abe a chance at a third term come Sep 2018 – could finally pave the way for the passing of the Integrated Resorts Promotion Bill, in our view. 
  • That said, we caution that competition is likely to be stiff, as major casino operators including Las Vegas Sands (LVS US, NR), MGM Resorts International (MGM US, NR), and Wynn Resorts (WYNN US, NR) are all looking to commit as much as USD5-10bn to establish their presence in the potential second largest gaming market in Asia. 

Maintain NEUTRAL, with unchanged DCF-derived TP of SGD0.82. 

  • All in, while we are positive on the disposal – which in our view signifies management’s commitment to conserve capital in preparation for the potential bidding of integrated resorts in Japan (which we deem more lucrative vis-à-vis South Korea’s gaming market, due to its restrictive policy to ban local gamblers in all but one of its 17 casinos) – the dearth of re-rating catalysts on its current VIP and mass market volumes in Resorts World Sentosa prompts us to reiterate our cautious stance.

DCF valuation. 

  • We assume an annual capex allocation of SGD200-250m in the foreseeable future for upkeep of its existing Resorts World Sentosa and as the group looks to expand its presence regionally into new markets in the long run. Based on a WACC of 7.3% and TG rate of 0.5%, we derive our TP of SGD0.82.

Singapore Research Team RHB Invest | http://www.rhbinvest.com.sg/ 2016-11-14
RHB Invest SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 0.820 Same 0.820