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

GENTING SINGAPORE PLC G13.SI

Genting Singapore - Core Fundamentals Improving

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.

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.

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 | http://www.ocbcresearch.com/ 2017-01-03

OCBC Investment SGX Stock Analyst Report HOLD Upgrade SELL 0.88 Up 0.750