SINGAPORE (Oct 25): UOB KayHian is maintaining Genting Singapore (GENS) at “buy” given now the stock is trading at a historically low valuation and should start to significantly rerate next year as newsflow of its bid for a casino resort in Japan intensify.
GENS currently trades at an attractive 5.9-6.0x 2018/19 EV/EBITDA, which is below –2SD to its mean EV/EBITDA, according to UOB.
“We expect valuations to trend up over time, supported by its unexcited but stable Singapore operations and as its bidding for Japan’s integrated resorts (IR) concession builds up to the request for proposal (RFP) stage,” says lead analyst Vincent Khoo in a Thursday report.
To recap, competitor Las Vegas Sands’ 3Q18 results revealed that Marina Bay Sands’ (MBS) core adjusted EBITDA decreased 5.2% y-o-y to US$419 million ($578 million) with a margin of 54.7%.
On a constant currency basis, core adjusted EBITDA fell 4.7% y-o-y in Singapore dollars. Mass market delivered a resilient performance and the VIP segment saw a sequential recovery.
MBS’s 3Q18 rolling chip volume (RCV) recovered 24% q-o-q. The improved gaming volume coupled with a better win rate led to a VIP GGR surge of 50% q-o-q in 3Q18.
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On an y-o-y basis, RCV continued its downtrend. Due to the improved win rate, VIP GGR dropped at a smaller quantum of 21% y-o-y in 3Q18. Slot GGR was up 4% y-o-y on a better win rate while mass table GGR was largely unchanged.
For GEN’s Resorts World Sentosa (RWS), UOB expects 3Q18 gaming volume for both mass and VIP segments to hover at 2Q18 levels.
“We estimate VIP volume to be flat y-o-y in 2H18, given the generally weaker macro environment and increasing competition from emerging casinos from Indo China,” says Khoo.
Despite a potentially quiet year for the industry, Khoo says Japan’s legalisation of IR has put the two Singapore casino operators as strong candidates in the IR bidding, given their experience in operating in a highly-regulated casino environment and track record in contributing to the country’s tourism.
“Our $1.38 target price for GENS has imputed a Japan “option value” of 10 cents for the Japan greenfield opportunity. The target price of $1.38 implies an EV/EBITDA of 10.5x in 2018,” says Khoo.
Year to date, shares in GENS are down a third to 88 cents on Thursday.
