Genting Singapore - RHB Invest 2018-12-14: Steady Wins The Race


Genting Singapore - Steady Wins The Race

  • Maintain BUY with unchanged Target Price of SGD1.23, 27% upside plus 3.6% FY19F yield.
  • We believe Genting Singapore is trading at an unjustified EV/EBITDA of 5.9 despite stable earnings growth and long term re-rating catalysts ahead. Our Target Price translates into an implied EV/EBITDA of 9x, which we deem reasonably close to its historical average of 10x.
  • We think the group’s credit extension strategy would be able to attract and retain higher volumes of premium and VIP customers, which in turn would lead to an expansion of its gaming market share moving forward.

Resilient tourist arrivals in Singapore.

  • In its latest earnings report, Genting Singapore reported an increase in average daily tourist arrivals to 22,000 in 3Q18 (vs 18,000 in 1H18). This was mainly driven by Universal Studios Singapore, S.E.A. Aquarium and Adventure Cove Waterpark. We expect contribution from its non-gaming division to remain sturdy in view of resilient tourist arrivals and higher average ticket prices.
  • Based on statistics from the Singapore Tourism Board, 9M18 tourist arrivals grew 7.5% y-o-y as compared to 5.1%YoY growth seen in 9M17. Visitor arrivals from Greater China alone grew 8% y-o-y, at a similar pace as FY17, implying that visitor growth levels are still healthy as of September. This is positive for Genting Singapore, as >50% of their customers originate from the region.

VIP expansion.

  • Genting Singapore’s strategy to loosen the tap for VIP customers has shown results in its recent third quarter numbers. This was reflected in the gradual increase in its trade receivables to SGD142m from SGD127m in Dec 2017, 13% y-o-y growth in VIP rolling volume amid rising trade war tensions and narrowing bad debt provision – improved 49% y-o-y to SGD22.5m (vs 9M17’s SGD43.6).
  • Looking ahead, we expect ...

Catalysts on the drawing board.

  • The reinvestment proposal for Resorts World Sentosa (RWS) still remains at the discussion stage.
  • On the bid for the Japan casino licence, we anticipate a formal request for proposal (RFP) to be drawn up by 2H19, followed by an announcement of Japan casino licence winners in FY20. Investors are upbeat about Genting Singapore’s expansion plans into Japan, which, in the long term, could act as a re-rating catalyst for the group.

Forecast and risks.

  • We make no changes to our earnings forecast. Key risks to our call include fluctuations in win rates and a slowdown in tourist arrivals at RWS as the SGD strengthens against regional currencies.

Maintain BUY with an unchanged Target Price of SGD1.23

  • At the current share price of Genting Singapore, we believe the stock is undervalued, since it is trading at a relatively low EV/EBITDA of 5.9, vs the regional peer average of 11.5x and its historical average of 10x.
  • We also like Genting Singapore for its potential expansion to the Japan market and its reinvestment into RWS, with more news flow expected in FY19. As such, we advise investors to accumulate on share price weakness.

Singapore Research RHB Securities Research | https://www.rhbinvest.com.sg/ 2018-12-14
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