Genting Singapore - OCBC Investment 2017-01-03: Core Fundamentals Improving

Genting Singapore - OCBC Investment 2017-01-03: Core Fundamentals Improving GENTING SINGAPORE PLC G13.SI

Genting Singapore - Core Fundamentals Improving

  • Cost savings; decrease in bad debt provisions.
  • Likely stabilization of VIP GGR.
  • Double-digit growth in Japan inbound tourism.

Bottoming out of VIP segment? 

  • We highlight improving fundamentals from Genting Singapore (GS) with a decrease in bad debt provisions as well as significant cost savings as noted in our 3Q results report. 
  • Importantly, the VIP segment in Singapore may have passed a trough, with Macau’s monthly gross revenue improving for the fifth straight month after two years of declines.

JP: Rosy prospects on tourism growth, strong local appetite 

  • According to the Japan National Tourism Organization, the number of visits to Japan has increased 22.4% YoY to 22.0m visits for Jan-Nov 2016. This figure already exceeded the total number of visits clocked for the whole of 2015 at 19.7m, and compares to Singapore’s 15.2m visitors for 2015. 
  • YoY growth in inbound arrivals to Japan for FY12 to FY15 ranged from 24% to 47%. For the Jan-Nov period, Chinese tourists made up 27% of the visits to Japan, followed by Korean tourists at 21% and Taiwanese tourists at 18%. 
  • Given the strong growth of inbound visitors in the past few years under Abe’s administration, and coupled with the popularity of the pachinko industry (~11K pachinko parlors; ~US$200b in revenue in 2016), we are optimistic of the prospects for the legalized gambling industry in Japan.

Upgrade to a HOLD 

  • Reflective of the strong 3Q results and the opportunity in Japan, the stock price has done well since early Nov, up some 23.5% in the last two months of 2016 versus the 10-month average from Jan-Oct. 
  • With GS’s improving operating outlook amidst positive industry developments, we deem current price levels reasonable; our fair value has increased from S$0.75 to S$0.88 after tweaking our assumptions for FY17 and FY18 to reflect a recovering operating outlook. 
  • In terms of risks, we find it unlikely for the Singapore government to issue a third casino license after 2017 when the 10-year exclusivity period on the current two licenses ends. 
  • We upgrade Genting Singapore from a Sell to a HOLD with a fair value of S$0.88.

Eli Lee OCBC Investment | 2017-01-03
OCBC Investment SGX Stock Analyst Report HOLD Upgrade SELL 0.88 Up 0.750