CGS-CIMB: Genting Singapore’s shares are ‘cheap as chips’

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

Genting Singapore’s shares are “cheap as chips,” trading at a discount to regional peers despite potential positives from the Resorts World Sentosa revamp and potential Japan integrated resort bid, CGS-CIMB said in a note Friday.

The stock is trading at 6.5 times fiscal 2020 enterprise value-to-earnings before interest, tax, depreciation and amortization (EBITDA), marking a 40 percent discount to its Macau peers’ 10.9 times , and a 20 percent discount to the 8.5 times average of regional gaming peers, the brokerage said. It’s also trading at a discount to Genting Singapore’s average 9 times, the note said.

That’s despite a firmer balance sheet position and higher EBITDAs, suggesting near-term risks are priced in, CGS-CIMB said.

To be sure, the brokerage cut its 2019-21 earnings per share forecasts by 0.7 percent to 2.1 percent on lower gross gaming revenue and higher bad debt charges, saying the ongoing U.S.-China trade war may introduce some near-term headwinds.

But CGS-CIMB pointed to the integrated-resort (IR) operator’s plans, announced in April, to redevelop the Resorts World Sentosa property in a S$45 billion project called RWS 2.0.

“After this transformational phase, we believe its share price would continue to rerate as GENS demonstrates its ability to withstand current headwinds and on the heels of any good news (i.e. Japan IR win, delivery of attractions),” the note said.

The brokerage estimated the revamp would have the biggest impact on RWS’ non-gaming segment, pushing revenue for the segment up by at least 40 percent to S$1.2 billion in fiscal 2026, compared with S$834 million in 2018. GENS 2018 total revenue was S$2.54 billion.

Japan’s IR basic policy is likely to be introduced by end-2019 at the earliest, with the first IR opening likely in 2026 at the earliest, CGS-CIMB said, noting Osaka called for a request for concept in April and Yokohama issued a request for information in the fourth quarter of 2018. GENS participated in both, it noted.

CGS-CIMB estimated the Yokohama and Osaka IRs could bring in at least around US$830 million to US$1.0 billion in EBITDA in 2026, once they open, while an IR in regional Japan could yield at least around US$270 million in EBITDA.

Based on GENS’ net cash of US$2.4 billion, or around S$3.3 billion, at the end of the first quarter, the Singapore-listed casino operator can cover the equity for an Osaka IR and a regional IR as well, the note said, adding it had enough for around 80 percent of a Yokohama IR.

“Its net cash position and track record give GENS a strong chance of winning urban/regional IR in Japan,” the note said.

CGS-CIMB kept the stock at Add, with a S$1.06 target price.

“GENS is in crucial long-term transformation mode and we like its current compelling valuation,” the note said.

The stock opened up 0.54 percent to S$0.93.

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