UOB KH: Genting Singapore to trend higher as Japan bidding progresses

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

Genting Singapore’s share price should trend higher as Japan’s bidding process for gaming concessions proceeds toward a conclusion next year, UOB KayHian said in a note Friday.

“We guesstimate that winning an IR [integrated resort] concession in Osaka could lift discounted cash flow by S$1.5 billion,” the note said. “With only three bidders in the running for Osaka, and that Osaka is a frontrunner for one of Japan’s three IR concessions, investors would surely impute some option value in valuing GENS (although we note that competition will still be stiff).”

Osaka is set to call for a request-for-proposals, which will close in February and be awarded in the first half of 2021, the note said, adding the bidding cities to submit their proposals to the federal government in the second half of 2020, with the three winning cities expected to be named in the first half of 2021.

“We were recently more assured that the IR concession will feature a good payback period, after noting that the concession period will be for 10 years with a seven-year exclusivity period,” the note said.

The brokerage said it expected Genting Singapore to maintain its dividend at 3.0 Singapore cents to 3.50 Singapore cents over 2019-2020, for “decent” yields of 3.3 percent to 3.8 percent, as the company has ample cash flow to fund its planned S$4.5 billion capital expenditure for Resorts World Sentosa’s makeover and the Japan concession.

UOB KayHian said it hasn’t seen many direct signs the Singapore integrated resort has benefited from Chinese tourists who may avoid Hong Kong after more than four months of protests. That’s despite a surge in Chinese visitors to Singapore, with tourist arrivals from China up 46 percent on-month in July, the note said.

“While we understand that the surge has not translated into a noticeable rise in casino patronage for RWS, we still expect a mild feed through into higher grind and premium mass gaming volumes, apart from better non-gaming revenues,” UOB KayHian said.

For the second half of 2019, the brokerage forecast somewhat weaker gross gaming revenue and earnings before interest, tax, depreciation and amortization (EBITDA), estimating EBITDA would fall 8.6 percent on-half and 5.7 percent on-year on tougher regional competition and lower local patronage after April’s 50 percent increase in the casino entry levy for locals to S$150.

“While local patronage is expected to partially recover after a two to three quarter effect, more problematic is the regional competition from IndoChina which typically offers better perks to premium mass players or commissions to premium players,” UOB KayHian said.

The brokerage kept a Buy call on the stock, with a S$1.11 target price.

The shares ended Friday flat at S$0.93; Singapore’s market was closed Monday for the Diwali holiday.

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