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Maybank Kim Eng upgrades Genting Singapore to 'buy' as it qualifies for Yokohama RFP process

Felicia Tan
Felicia Tan6/2/2021 11:34 AM GMT+08  • 3 min read
Maybank Kim Eng upgrades Genting Singapore to 'buy' as it qualifies for Yokohama RFP process
The brokerage has upped Genting Singapore's target price to $1.16 from 86 cents previously.
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Maybank Kim Eng analyst Yin Shao Yang has upgraded Genting Singapore to “buy” from “hold” as the group has qualified for its request-for-proposal (RFP) process with regard to Yokohama’s search for a partner for its integrated resort.

See: Genting Singapore has 'good chance' of winning Yokohama integrated resort: Maybank Kim Eng

Yokohama, on May 31, announced that two groups qualified, one of them being the joint venture (JV) by Genting Singapore and Sega Sammy. The other group is headed by Melco Resorts and Entertainment.

Genting Singapore and Sega Sammy have since named Kajima Corporation as their contractor of choice for the Yokohama IR, which is the main contractor that oversaw construction of Genting Singapore’s Resorts World Sentosa (RWS).

In his report dated June 2, Yin is confident that the joint venture led by Genting Singapore will win the RFP process, as the group comes up better in terms of promoting tourism, management and financial abilities, as well as responsible gaming initiatives.

Yokohama is expected to announce the winner of its IR RFP process this summer (from June to August).

On this, should the win come through, Yin estimates that the Yokohama IR will add $1.8 billion to the group’s earnings, as the IR is expected to generate US$2.7 billion ($3.57 billion) in its first full year of operations, and “is worth US$7.2 billion or 60 Singapore cents per share”.

The $1.8 billion to Genting Singapore’s earnings is based on the assumption that Genting Singapore owns a 50% stake in the JV following confirmation from Sega Sammy that it intends to take up a minority stake in the JV.

The win will also up Yin’s target price estimate by 30 cents per share, which he has now pegged at $1.16 from 86 cents previously.

On the other hand, Yin notes that there may a risk that a mayor who’s against the Yokohama IR project may be elected during the city’s mayoral elections on Aug 29, although he still views Genting Singapore as a ‘tactical buy’ as no value from the Yokohama IR has been included into its share price yet.

Upside factors on the counter include a VIP win rate that’s above theoretical levels, as it can positively influence Genting Singapore’s earnings. Other upside factors include a mass market mix among its VIPs that will “expand margins due to less commissions and rebates”, as well as a $4.5 billion RWS expansion that will expand Genting Singapore’s gaming and non-gaming capacity.

On the other hand, downside factors include lower-than-expected VIP win rates, bad debts from its VIP customers, as well as the exploration of an expansion in the region.

As at 11.24am, shares in Genting Singapore are trading 1.5 cents higher or 1.8% up at 87 cents.

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