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


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. 

Singapore development.

  • 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. 

RWS redevelopment details.

  • 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. 

Casino tax hike.

  • 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

Forecast and risks.

  • 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