SINGAPORE (June 24): CGS-CIMB Securities continues to rate Genting Singapore (GENS) at “add” with an unchanged target price of $1.06.

With several upcoming urban and regional integrated resort (IR) in Japan, many gaming players are eager to secure these opportunities.

"We think Japan’s IR Basic Policy would be introduced by end-FY19 at earliest," says analyst Cezzane See.

So far, Osaka has called for a request for concept (RFC) in April and Yokohama has issued its request for information (FRI) in 4Q18 and GENS has participated in both.

In a Friday report, See says, “We think any new casino openings could be in FY26 at the earliest. In our base-case scenario for FY26, we estimate urban IRs could yield US$830 million ($1.12 billion) to US$1.0 billion EBITDA, while a regional IR could contribute about US$270 million EBITDA.”

GENS has previously stated it prefers larger IRs, but the analyst reckons a regional IR is likely to be earnings accretive and break even in a shorter period.

Assuming GENS takes a 50% stake, debt financing and 11 times FY26 EV/EBITDA, See estimates urban IRs could add 18-23 cents while regional IRs add 7 cents to GENS’s fair value.

Moreover, the group’s non-gaming segment revenue is expected to rise by about 40% to $1.2 billion in FY26, with 50% more hotel rooms and three new attractions.

Assuming a return of 12%, discounted at 8.8% Weighted Average Cost of Capital (WACC) back to FY20, and valued at 10 times FY26 EV/EBITDA, Resorts World Sentosa 2.0 is estimated to add 5 cents to GENS’s FY20 fair value.

“We think GENS’s average FY19-21 operating cash flow of $1 billion per annum will be sufficient to cover the around $900 million per annum ($4.5 billion for five years) capex for RWS 2.0,” adds See.

Meanwhile, for the equity needs of an Osaka and regional IR, as well as 80% of a Yokohama IR, See expects that the group’s end-1Q19 net cash position of US$2.4 million to meet that.

Currently, the stock is trading below a historical mean of 9 times, making it the least-expensive stock in CIMB-CGS’s regional gaming universe.

As at 4.10pm, shares in GENS are trading at 1.08% lower at 92 cents or 1.4 times FY19 book with a dividend yield of 3.8%.