Genting Singapore - RHB Invest 2019-04-04: Casino Tax Hike, Huge RWS Capex ~ DOWNGRADE

GENTING SINGAPORE LIMITED (SGX:G13)

Genting Singapore - Casino Tax Hike, Huge RWS Capex: DOWNGRADE

Downgrade to NEUTRAL from Buy with a new DCF-derived SGD1.08 Target Price from SGD1.22, 1% upside plus 3.4% FY19F yield. See Figure2 in attached PDF report for Genting Singapore's valuation details.
GENTING SINGAPORE LIMITED (SGX:G13) will invest up to SGD4.5bn to rejuvenate Resorts World Sentosa (RWS). The Government also announced a casino tax increase, which will take effect in 2022.
Our new call is in view of RWS’ higher-than-expected capex for redevelopment plans and a 3ppts hike in the gaming tax. However, we are still positive on the potential casino license in Japan.

In a joint release by four government ministries, the following announcements were conveyed: redevelopment plans for Genting Singapore and Marina Bay Sands (MBS), a 3ppts increase in gaming tax effective 2022, an extension of exclusive rights for the two casinos to end-2030 and a 50% rise in casino entry levies for locals.
Genting Singapore and MBS have agreed to jointly invest up to SGD9bn to build world-class attractions in the country on top of their existing integrated resorts (IRs). In return, the Government has extended their exclusive rights as casino players in the country.
These developments are aimed at keeping these IRs commercially viable and to attract higher-tier non-mass market players who are mainly tourist.

Genting Singapore will invest up to SGD4.5bn (previous guidance: SGD1bn) to renew and refresh RWS.
The expansion of this IR is expected to be over a 5-year period with ~50% of new gross floor area of leisure and entertainment spaces. The development will include the expansion of Universal Studio Singapore with two new theme parks: Minion Park and Super Nintendo World; a 500 sq m gaming space addition; more in-resort accommodation with up to 1,100 additional hotel rooms; more meetings, incentives, conferences & exhibition facilities; and the development of a driverless transport system that will enhance last-mile connectivity to RWS.

From 2022 onwards, casino gaming tax for the VIP segment will increase to 8% from 5% for the first SGD2.4bn of gross gaming volume (GGR), while the tax for the mass segment will increase to 18% from 15% for the first SGD3.1bn of GGR (See Figure1 in attached PDF report).
We note that Genting Singapore’s total GGR is c.SGD2bn as at FY18, which leaves it with plenty of room to grow before hitting the new Tier-2 gaming tax rate of 12% (VIP) and 22% (mass market).
We are also of the view that the 3ppts tax hike will be manageable, as the firm’s FY18 EBITDA margins stands at 48.3% (FY17: 43.6%). Based on our estimates, a 3ppts hike in gaming taxes for both segments in 2022 will result in a 5% decline in Genting Singapore's FY22 EPS, ceteris paribus.

We trim our FY19F-21F EPS 2-3% to take into account higher upfront expenses by Genting Singapore as a result of the upcoming rejuvenation plans at RWS and additional SGD4.5bn capex spread across five years.
We also impute higher visitor growth and average ticket prices post redevelopment and account for a hike in gaming taxes for both VIP and mass market segments from 2022 onwards. Consequently, our DCF-derived Target Price was reduced to SGD1.08 and we downgrade to NEUTRAL.
Key upside and downside risks:
- fluctuations in luck factor,
- slowdown/uptick in tourist arrivals and gaming volume,
- strengthening/weakening of the SGD, and
- gain/loss of market share.

Singapore Research RHB Securities Research | https://www.rhbinvest.com.sg/ 2019-04-04

SGX Stock Analyst Report NEUTRAL DOWNGRADE BUY 1.08 DOWN 1.220