Nomura: Genting Singapore’s depressed valuations ‘unjustified’

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

Genting Singapore shares’ low valuations aren’t justified, Nomura said after hosting management at investor meetings at the Nomura Investment Forum in Tokyo last week.

“While some of the de-rating can be explained by a correction in regional gaming stocks and trade war fears, we feel current depressed valuations are unjustified in the face of a strong earnings showing by the company,” Nomura said in a note on Friday.

GENS reported last month that its third quarter net profit rose 25 percent on-year to S$210.41 million amid a strong performance in its attractions business.

At the meetings last week, management said it saw room for VIP rolling-chip volume growth ahead, bucking trends at Marina Bay Sands, largely on expectations VIP credit will be incrementally increased to tap new and existing customers in Southeast Asian and North Asian markets, Nomura said.

It noted Genting Singapore had tightened credit over the 2015-16 period to lower its runaway trade receivables balance, which had risen above S$1 billion in 2014.

“Management feels that there is still some room to increase credit to more normalised levels (from the overly tight policies of previous  years),” Nomura said. The investment bank projected VIP roll would increase 19 percent on-year this year and 5 percent each for 2019 and 2020.

But the bank said it expected the mass-market business would stay “flattish.”

“The grind segment is facing competition from the regional mass markets like Cambodia and Philippines, which can offer cheaper rooms than Singapore and also more complementary services,” Nomura said.

But the bank noted GENS has successfully increased its non-gaming revenues, which rose 7 percent in the first nine months of 2018, by taking measures including dynamic ticket pricing at Universal Studios and a better channel mix for ticket sales.

“As per management, this could possibly lead to further growth in revenues in next few quarters,” Nomura said.

It added that GENS was likely to keep its dividend at 3.5 Singapore cents a share near term, despite its S$3.9 billion cash balance at the end of the third quarter, so that it has a stronger cash buffer for revamping Resorts World Sentosa and for its Japan Integrated Resort bid.

“Japan is likely to announce national guidelines on IRs next year, which will give more clarity to GENS on its capex needs and timelines,
after which it can optimise its capital structure and decide if higher dividends can be paid out,” Nomura said.

It estimated the share was trading at an enterprise value-to-EBITDA multiple of 7.2 times, while it set its target price at a multiple of 11 times, for a S$1.39 target. Nomura rates the share at Buy.

Shares of Genting Singapore were down 2.53 percent at S$0.965 at 11:00 A.M. SGT; the Straits Times Index was down 1.40 percent at 10:46 A.M. SGT.

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