Japan expansion, upgrade of Resorts World Sentosa keep Genting at 'buy' by RHB

Japan expansion, upgrade of Resorts World Sentosa keep Genting at 'buy' by RHB

By: 
Samantha Chiew
16/01/19, 11:22 am

SINGAPORE (Jan 16): RHB Reserch is maintaining its “buy” call on Genting Singapore with a target price of $1.23.

In a Wednesday report, RHB says, “We like Genting Singapore for its potential expansion into the Japan market and the upcoming reinvestment into Resorts World Sentosa (RWS), with more news flow expected in FY19.”

In 3Q18, the group reported a 46% increase in earnings to $210.4 million, which was resulted from its strategy to loosen the tap for VIP customers.

See: Genting Singapore reports 46% rise in 3Q earnings to $210.4 mil on lower operating expenses

Trade receivables increased to $142 million from $127 million in Dec 2017, marking a 13% y-o-y growth in VIP rolling volume amid trade war uncertainties and narrowing bad debt provisions, which improved 49% y-o-y to $22.5 million.

“We expect its prudent credit extension to continue despite the slowdown in gaming volume from Macau. This should be able to attract and retain higher volumes of premium and VIP customers, which in turn will lead to a bigger gaming market share,” says RHB.

Genting has a few catalysts in the pipeline, including the reinvestment proposal for RWS, albeit still in the discussion stage.

It is also expanding into the Japan market and on the Japan casino licence bid, RHB reckons that the potential locations for the three casinos are Yokohama, Osaka and Hokkaido.

“In our view, it stands a chance to win, due to its strong net cash position ($2.9 billion in 3Q18) and track record as an integrated resorts casino operator in Singapore that adheres to stringent regulatory requirements,” says RHB.

A formal request for proposal (RFP) is expected by 2H19, followed by an announcement of the licence winners in FY20. RHB expects share price excitement this year to be driven by news flow.

On the non-gaming front, RHB expects contribution to remain sturdy in view of resilient tourist arrivals and higher average ticket prices.

“We believe the stock is trading at an unjustified EV/EBITDA of 7.5 times (vs regional peers’ 10.6 times and its 5-year historical mean of 10 times) despite stable earnings and long-term re-rating catalysts ahead,” says RHB.

As at 11.20am, shares in Genting Singapore are trading at $1.08 or 1.6 times FY19 book with a dividend yield of 3.3%.

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