Deutsche Bank: Genting Singapore is ‘cheap,’ but China VIP worries weigh

Genting Singapore’s Resorts World Sentosa; taken 2018Genting Singapore’s Resorts World Sentosa; taken 2018

Shares of Genting Singapore look attractive on a valuation perspective, but concerns over weakness in the Chinese VIP business are set to weigh, Deutsche Bank said in a note on Wednesday.

“Investors’ worries about Chinese VIP weakness are valid,” it said.

Karen Tang, Deutsche Bank’s head of Asia gaming, has said that Macau is heading into the second stage of a four-stage downcycle, with VIP growth slowing sharply, the note said.

“Her checks have indicated some agents tightening credit to VIPs in the export trade, as they fear the U.S.-China trade war may hurt the ability of these VIPs to repay gambling debts,” the note said.

While in the third quarter of last year, Genting Singapore “turned on its credit tap” to attract VIPs, the company may hold back ahead, it said.

That leaves only a catalyst of potentially winning a bid for the Japan integrated resort, it said, but added it was too early to price in any potential upside to the stock. However, it pointed to signs that GENS was a solid contender for the tender.

It noted that secured funding for the capital expenditure and the operating expenditure are the main criterion, with the bidder needing around US$10 billion to US$15 billion committed liquidity for the bidding. That would be a non-issue for Genting Singapore as it has a net cash position of US$2 billion, it said.

Genting Singapore, along with Las Vegas Sands, are the only players with a proven track record of developing integrated resorts as compelling tourist destinations as well, it noted.

However, it pointed to reason to curb enthusiasm over the bid: “If Japan mimics Singapore’s casino rules, the junket-based casino operating model might not work and could make it less attractive.”

Deutsche Bank cut its GENS target price to S$1.40 from S$1.60, after removing a potential non-gaming asset sale; it said it priced in S$0.10 for potentially winning the Japan integrated resort bid.

But it noted that with an implied yield of 3.7 percent from its fixed dividend per share of 3.5 Singapore cents and trading at seven times 2019 enterprise value, the stock appeared attractive. It kept a Buy call.

The stock was flat at S$0.945 at 16:40 SGT.

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