SINGAPORE (Feb 24): CIMB is upgrading Genting Singapore to “add” with a target price of $1.11 as it expects the stock to undergo a re-rating soon.
In 4Q16, GENS’s EBITDA rose 28.9% to $233.7 million, thanks to its cost efficiency initiatives. 4Q16 gaming and non-gaming revenue fell 2% and 9% respectively, likely on a lower VIP win rate of 2.8%.
However, the EBITDA margin grew to 41.9% due to a 17% q-o-q drop in expenses driven by lower impairment of loss in trade receivables and administrative costs.
In a Thursday report, analyst Cezzane See says GENS is convinced it has restructured the VIP business by reducing its bad debts and account receivables levels.
See understands that GENS’s management will focus on growing VIP revenues in 2017 instead of collections. It will also continue to pursue the premium mass segment by reinvesting in the integrated resort.
The Maritime Experiential Museum is also scheduled to undergo complete renovation and will re-open with all new content at end-2017.
CIMB’s See says GENS is currently trading at an estimated FY18F EV/EBITDA of 7x which is below its historical average five-year mean of 11.5x.
“We believe the stock should trade up to at least the –1 s.d. level of about 9x given EBITDA margins are recovering to levels in FY14,” says See. “We also note that the stock traded higher in FY14 during the last time Japan was tabling the casino bill.”
Although GENS is fully committed to building a casino resort in China, all eyes are on Osaka although GENS is not ruling out participating in Yokohama should bids emerge.
GENS believes its track record as a successful integrated resorts player in Singapore and its cash pile of $5 million will make it a strong contender.
Lastly, GENS has surprised shareholders with a 1.5 cents DPS in 4Q16, bringing full-year DPS to 3.0 cents.
“This represents an all-time high payout ratio of 135% on FY16 core EPS and trumps the historical DPS of 1-2 cents for FY14-15,” says See. Management has guided for 3 cents DPS for the coming years to reward shareholders, she adds.
Shares of GENS are down 2 cents at $1.02.
