Genting Singapore - Maybank Kim Eng 2018-07-22: The Last Potentially Great Gaming Market Opens Up

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GENTING SINGAPORE PLC SGX:G13 (X)

Genting Singapore - The Last Potentially Great Gaming Market Opens Up

Maintain BUY call and SGD1.46 Target Price

• Japan has liberalised its casino industry. Many issues have yet to be finalised but we opine that Genting Singapore (GENS) stands a good chance to win a license thanks to its responsible gaming experience and solid net cash position. 
• Pundits estimate that Japanese gross gaming revenue (GGR) could be between USD6b-USD40b p.a. (2017 Singapore: USD4.6b). 
• Our estimates, BUY call and SGD1.46 Target Price based on 12x FY18 EV/EBITDA, in-line with the 9-year 12M forward EV/EBITDA mean, are unchanged for now.

Japanese casino industry finally liberalised

• The House of Councillors of the Japanese Diet points are:-
  1. Cap of three IRs during the first stage of liberalisation
  2. Casino floor area capped at 3% of total floor area
  3. Gaming tax rate set at 30% of GGR
  4. Japanese will be subject to JPY6,000 entry fee every 24 hours and their number of visits limited to three weekly and ten monthly.

Integrated Resorts licenses likely to be issued in 2020

• Going forward,
  1. a casino control commission will be established
  2. about 300 additional regulations will be set
  3. an RFP process will be set for gaming operators and prefectures who are expected to submit joint bids
  4. a NGO similar to the National Council on Problem Gambling in Singapore will be created to handle responsible gaming issues.
• Consensus expects the RFP process to begin in mid-2019, Integrated Resorts licenses to be issued some time in 2020 and the first Integrated Resorts to open in 2025.

Many issues yet to be determined though

• The outstanding issues are
  1. location of the Integrated interest in Integrated Resorts.
  2. whether one gaming operator can partner only one prefecture or whether multiple gaming operator can partner multiple prefectures/
  3. capex commitments.
  4. whether foreign gaming operators will be allowed to wholly own Integrated Resorts; and
  5. whether Macau style junkets will be allowed.

GENS in good stead to win a license, in our view

• Throughout the legislative process, we note that Japanese lawmakers made repeated references to the social safeguards installed in Singaporean IRs (i.e. entry fees, visit limits and research on gambling addiction). Therefore, we gather that gaming operators that operate in Singapore like GENS will have an advantage over others that do not. 
• With its huge construction of any Integrated Resorts through.
• For now, we have not imputed any earnings or valuation contribution from any potential Japanese IR into our GENS earnings estimates and Target Price.

Swing Factors

Upside

• VIP win rate -If VIP win rate is above theoretical levels, it can positively influence earnings. 
• Local mass market base -Singaporeans account for the majority of mass market gamblers and are more resilient. 
• VIP: mass market mix -Tilt towards mass market will expand margins due to less commissions and rebates. 

Downside

• VIP win rate –If VIP win rate is below theoretical levels, it can negatively influence earnings. 
• Bad debts –Chinese account for the majority of VIPs but gambling debts are not enforceable in China. 
• Regional expansion –new jurisdictions often require high capex commitments without guaranteeing returns. 

Yin Shao Yang Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2018-07-22

SGX Stock Analyst Report BUY Maintain BUY 1.460 Same 1.460