Genting Singapore - CGS-CIMB Research 2019-06-21: Playing A Crucial Hand


Genting Singapore - Playing A Crucial Hand

  • Its net cash position and track record give GENTING SINGAPORE LIMITED (SGX:G13) a strong chance of winning urban/regional IR in Japan that may accrete 18-23/7 Scts to FY20F fair value.
  • On the home front, we estimate RWS 2.0 could spur Genting Singapore's non-gaming revenue up to S$1.2bn in FY26F (vs. FY18: S$834m).
  • Genting Singapore is in crucial long-term transformation mode and we like its current compelling valuation of 6.5x FY20F EV/EBITDA. Maintain ADD.

First integrated resort in Japan could emerge by 2026F

  • Many gaming players are eager to secure upcoming Integrated Resort (IR) opportunities in Japan, based on our ground checks at the Japan Gaming Congress in May 2019, pledging Japan-centric designs, large capex, measures to mitigate negative social impact and rapid construction.
  • We think Japan’s IR Basic Policy would be introduced by end-FY19F at earliest. Osaka called for Request for Concept (RFC) in Apr 2019 and Yokohama issued its Request for Information (RFI) in 4Q18. Genting Singapore participated in both.
  • See attached 35-page PDF report for further details and also the key takeaways from Japan Gaming Congress 2019.

Urban IRs to add 18-23 Scts to GENS fair value, regional +c.7 Scts

  • We think any new casino openings could be in FY26F at the earliest.
  • In our base-case scenario for FY26F, we estimate urban IRs could yield US$830m-1.0bn EBITDA (see Figure22 in attached PDF report), while a regional IR could contribute c.US$270m EBITDA. Assuming Genting Singapore takes a 50% stake, debt financing and 11x FY26F EV/EBITDA, we estimate urban IRs could add 18-23 Scts while regional IRs add 7 Scts to Genting Singapore’s fair value (see Figure31 in attached PDF report).
  • Genting Singapore previously stated its preference for larger IRs, but a regional IR is likely to be earnings accretive and break even in a shorter period, in our view.

Resorts World Sentosa (RWS) 2.0 to boost GENS’s fair value

  • Our base case sees non-gaming segment revenue rising c.40% to S$1.2bn in FY26F (vs. FY18: S$834m), with 50% more hotel rooms and three new attractions. Assuming a return of 12%, discounted at 8.8% WACC back to FY20F, and valued at 10x FY26F EV/EBITDA, we estimate RWS 2.0 could add 5 Scts to Genting Singapore's FY20F fair value.

Sufficient capacity

  • We think Genting Singapore’s average FY19-21F operating cash flow of S$1 capex for RWS 2.0.
  • Genting Singapore's end-1Q19 net cash position (US$2.4bn) would meet the Yokohama IR (50% stake and 50% debt-equity), in our view.

Cheap as chips; maintain ADD

  • Our earnings estimates do not impute any Japan arise in the near term (but we expect both to be accretive). Genting Singapore’s 6.5x FY20F EV/EBITDA is close to -1 s.d. below historical mean of 9x, making it the least-expensive stock in our regional gaming universe. See Figure40 in attached PDF report for peer comparison table.
  • We trim FY19-21F EPS by 0.7-2.1% on lower GGR but retain ADD and S$1.06 Target Price, based on 8x FY20F EV/EBITDA (-0.5 s.d. below historical mean).
  • Catalysts: Japan IR win, higher revenue & margins. Risks: lower revenue & margins.

Cezzane SEE CGS-CIMB Research | 2019-06-21
SGX Stock Analyst Report ADD MAINTAIN ADD 1.060 SAME 1.060