SINGAPORE (May 15): UOB KayHian is maintaining its “hold” call on Genting Singapore, recommending investors enter and exit at $1.05 and $1.15 respectively after raising its earnings forecast and rolling forward its investment time horizon.
“Our target price has imputed a 10 cents Japan ‘option value’ assumption 30% success rate, US$10 billion development cost with 15% ROIC and 50% JV stake,” says analyst Vincent Khoo in a Monday report.
Khoo says Genting Singapore is positive on the development progress of the establishment of casino gaming industry in Japan. Management expects the second bill that writes the legislation governing integrated resorts (IRs) to be passed in the Diet session this autumn and bidding could be probably start by mid-18.
However, the bidding involves a two-stage process. The prefectural governments that have interests in hosting IRs would have to select the casino operators that they want to work with, and subsequently, the prefectural governments together with the casino operators would have to propose to the federal government to host an IR.
“For now, it is still unclear whether a casino operator would be totally eliminated from the Japan IR bidding should the prefecture that it is tied with not be chosen for an IR location,” says Khoo, who says the selection of operators should only take place by 2019 with the opening of the IR in 2022-23.
In 1Q17, Genting Singapore reported core adjusted EBITDA of $283 million, 45% higher a year ago on further cost efficiency initiatives.
See also: Genting Singapore 1Q earnings up more than fivefold on disposal gain
1Q17 core adjusted EBITDA margin of 48% was the highest since 2Q14. This reflected lower impairment of receivables which dropped to $15 million from $92 million a year ago, thanks to the tightened credit policy and the revision of commission fee model that incentivises early repayment.
Genting Singapore also announced its intention to redeem perpetual securities of $1.8 billion and $500 million, which has call dates of Sept 12 and Oct 18 respectively. Post redemption, the group will still be sitting on a strong net cash pile of $2.3 billion which provides it with the flexibility to gear up for its Japan IR bid if needed, says Khoo.
Management also shared that it is comfortable dishing out 3 cents dividend per share in FY17, same as in FY16.
“The possibility for DPS extending beyond 3.0 cents is highly dependent on the progress of Japan’s IR bidding,” adds Khoo.
Shares of Genting Singapore are up 6 cents at $1.14.
