R e g i o n a l M o r n i n g N o t e s Friday, 25 October 2019

COMPANY UPDATE BUY

Genting Singapore (GENS SP) (Maintained)
A Timely Smart Bet Share Price S$0.92
GENS’ share price should trend up as the bidding process for the Japan gaming Target Price S$1.11
concession progresses to its finale in 2020. GENS is a shortlisted candidate for Osaka, Upside +26.2%
which promises a good payback period. Failure to clinch the concession could also
mean better dividends from the cash-flushed company. Meanwhile, Resort World COMPANY DESCRIPTION
Sentosa’s 5-year expansion plan is on track and we continue to project a moderate Resort properties developer.
GGR contraction for 2H19. Maintain BUY. Target price: S$1.11.
WHAT’S NEW STOCK DATA
GICS sector Consumer Discretionary
• Japan integrated resort (IR) development ‘option value’ to emerge as GENS’ bid
Bloomberg ticker: GENS SP
progresses. Genting Singapore (GENS) was one of three bidders shortlisted following
Osaka’s request-for-concept (RFC) exercise. Next, Osaka will call for a request-for-proposal Shares issued (m): 12,045.0
(RFP) which closes in Feb 20 followed by the awarding in 1H21. The bidding cities will then Market cap (S$m): 12,406.3
submit their proposals to the federal government in 2H20, and the federal government is Market cap (US$m): 9,448.1
expected to name the three winning cities by 1H21. We were recently more assured that the 3-mth avg daily t'over (US$m): 33.0
IR concession will feature a good payback period, after noting that the concession period will
Price Performance (%)
be for 10 years with a 7-year exclusivity period.
52-week high/low S$1.39/S$1.03
• Flattish to slightly lower earnings in 2H19. Recall that GENS’ 1H19 EBITDA fell 0.1% yoy
1mth 3mth 6mth 1yr YTD
to S$624.1m as a recovery in VIP volume and exceptional high win rates (3.30-3.40% vs
(10.4) (23.1) (15.2) 0.0 (21.4)
theoretical level 2.85%) were offset by a mid-single-digit contraction in mass volume. We
expect a slightly softer 2H19 EBITDA, incorporating the following hoh assumptions for 2H19 Major Shareholders %
- lower VIP GGR contribution (lower win rate) and lower mass market GGR (which shrank Genting Bhd 52.8

10.3% qoq in 2Q19 amid rising regional gaming and impact of higher entrance levy for local
FY18 NAV/Share (S$) 0.65
gamers).
FY18 Net Cash/Share (S$) 0.27
• $4.5b expansion plan on track…Recall that Resort World Sentosa (RWS) has committed
to the Singapore government to allocate capex of S$4.5b over five years to elevate the PRICE CHART
resort’s vibrancy and appeal. Planned launches include Singapore Oceanarium (a
(lcy) (%)
rebranding of the Aquarium-cum-Maritime Museum) in 2022, new attractions in Universal 1.20
GENTING SINGAPORE LTD GENTING SINGAPORE LTD/FSSTI INDEX

130
Studio Singapore which will feature Minion Park (with 3D motion-simulator thrill ride) and
1.10 120
Super Nintendo World as early as 2022-24, two new destination (5-star and 6-star)
waterfront lifestyle hotels. The entire expansion is scheduled to be completed in 2025 (refer 1.00 110

RHS chart for details). Meanwhile, the government’s plan to convert the neighbouring Pulau 0.90 100
Brani area into a destination theme park would not compromise but compliment RWS’ appeal.
0.80 90
• …would not affect planned dividend practice. RWS’ capex will peak towards 2022-24
0.70 80
apart from the initial S$1b payment needed for land acquisition premiums. Even should it 300
Volume (m)
clinch the Japan concession which could require an equity injection of S$3.2b, capex would 200

100
only peak in 2024-25. GENS’ cash hoard and lush cash flows can amply support present
0
dividends (see overleaf for details). Oct 18 Dec 18 Feb 19 Apr 19 Jun 19 Aug 19 Oct 19

KEY FINANCIALS Source: Bloomberg

Year to 31 Dec (S$m) 2017 2018 2019F 2020F 2021F
ANALYST(S)
Net turnover 2,393 2,539 2,605 2,678 2,774
EBITDA 1,151 1,230 1,195 1,221 1,258 Vincent Khoo, CFA
Operating profit 868 914 886 913 962 +603 2147 1998
Net profit (rep./act.) 601 755 750 779 840 vincentkhoo@uobkayhian.com
Net profit (adj.) 648 767 750 779 840
Jack Goh
EPS (S cent) 5.4 6.4 6.2 6.5 7.0
PE (x) 17.3 14.6 14.9 14.4 13.3 +603 2147 1983
P/B (x) 1.5 1.4 1.4 1.3 1.2 jackgoh@uobkayhian.com
EV/EBITDA (x) 6.5 6.1 6.3 6.1 6.0
Dividend yield (%) 3.8 3.8 3.2 3.2 3.2
Net margin (%) 25.1 29.7 28.8 29.1 30.3
Net debt/(cash) to equity (%) (35.2) (40.8) (45.4) (48.2) (53.3)
Interest cover (x) n.a. n.a. n.a. n.a. n.a.
ROE (%) 7.1 9.9 9.4 9.3 9.5
Consensus net profit - - 704 701 717
UOBKH/Consensus (x) - - 1.06 1.11 1.17
Source: GENS , Bloomberg, UOB Kay Hian

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R e g i o n a l M o r n i n g N o t e s Friday, 25 October 2019

STOCK IMPACT TIMELINE DEVELOPMENT FOR JAPAN IRs

Event Timeline
• One step forward for the Japan IR development bid. While our valuation has
Formation of oversight panel (Casino 1H19
conservatively not imputed an option value, we guesstimate that winning an IR concession Regulatory Authority equivalent in
in Osaka could lift DCF by S$1.5b. With only three bidders in the running for Osaka, and that Singapore) and licensing process outlined.
Osaka is a frontrunner for one of Japan’s three IR concessions, investors would surely Submit official RFC to local government. 3Q19
Submit official RFP to cities’ local 4Q19
impute some option value in valuing GENS (although we note that competition will still be governments (two stages)
stiff). Operators to be selected by local 1H20
governments and to develop business plan
• Moderately weaker GGR and EBITDA in 2H19 amid tougher regional competition and
Operators and local governments to submit 2H20
higher entrance levy. We expect 2H19 EBITDA to fall 8.6% hoh and 5.7% yoy, reflecting the IR proposal to federal government.
tougher regional competition (which chips away at its premium mass segment) and lower Award of federal government 1H21
local patronage (full and lingering impact of the 50% increase in casino entry levy to IR opening 2024
S$150/entry in Apr 19). While local patronage is expected to partially recover after a 2-3 Source: GENS, various media
quarter effect, more problematic is the regional competition from IndoChina which typically
OSAKA IR ASSUMPTIONS
offers better perks to premium mass players or commissions to premium players.
Event Details
• Hopes for spill-over of China tourists amid Hong Kong protests. Hong Kong’s past four Potential DCF enhancement S$1.5b
(assumptions)
months of violent anti-government protests have re-channelled Chinese tourists from Hong
Capex US$10b (60:40 debt:equity)
Kong to other Asian countries, resulting in a surge in Chinese visitors to Singapore (Chinese
Estimated GGR S$ 4-6 bn
tourist arrivals surged 46% mom in Jul 19). While we understand that the surge has not Bidders MGM Resorts, Galaxy. GENS
translated into a noticeable rise in casino patronage for RWS, we still expect a mild feed Source: GENS, various media
through into higher grind and premium mass gaming volumes, apart from better non-gaming
revenues. TIMELINE DEVELOPMENT FOR NON-GAMING
ATTRACTIONS
• Impairment of receivables to normalise in 2H19. In 2Q19, GENS recorded a high
Attraction Timeline
provision of S$47m as management has taken an unusual prudence of partly providing for Adventure Dining Playhouse End 2020
fresh receivables arising from that quarter’s exceptionally high luck factor. Moving forward, Singapore Oceanarium 2022
provision is expected to have a quarterly run rate similar to the average of 1H19, which is Minion park (replace Madagascar zone) 2023
around S$29m (1Q19: S$11m; 2Q19: S$47m). Super Nintendo World 2024
Waterfront lifestyle complex with two hotel 2025
• Ample cash flow to fund RWS capex and Japan concession, while sustaining towers 5&6 stars DTS towards the end.
dividends at 3.0-3.5 S cents. We expect GENS’ DPS to sustain at 3.0-3.5 S cents in 2019- * Rough estimate with more details post land acquisition
20, representing decent prospective yields of 3.3-3.8% based on current share price. GENS’ Source: GENS, various media
existing net cash of S$3.6b, combined with the expected cumulative net inflows of S$6.8b SPIKE IN CHINESE VISITATION TO SINGAPORE
through 2025, is more than sufficient to fund annual dividends of 3.0-3.5 S cents, RWS’ (2019)
planned S$4.5b capex and S$3.2b equity commitment (assuming 50% partnership stake) 450,000
should it clinch a Japan IR concession. Peak capital equity outlay for RWS and Japan IR are 400,000
350,000
not expected to overlap.
300,000
EARNINGS REVISION/RISK 250,000
200,000
• None. 150,000
100,000
• Catalyst: A key catalyst continues to be the progress in the Japan IR concession. 50,000
0
VALUATION/RECOMMENDATION Jan Feb Mar Apr May Jun Jul Aug

• Maintain BUY and target price of S$1.11, implying 7.6x 2020F EV/EBITDA. Our valuation Number of visitors

conservatively excludes option value of Japan IR opportunity (assumption: 30% success Source: CEIC, UOB Kay Hian
rate, US$10b development cost with IRR 13% and 50 % JV stake). Meanwhile, current RECEIVABLES IMPAIRMENT
valuations are well supported by prospective dividend yield of 2.7-3.2%. (S$m) (%)
100 35
Impairment (LHS)
90
GENS: HYPOTHETICAL CASHFLOW PROJECTION 80
Impairment as % of receivables (RHS) 30

70 25
2021F 2022F 2023F 2024F 2025F 2026F 60 20
Operating 1,147.6 1,147.6 1,147.6 1,147.6 1,147.6 1,147.6 50
15
40
Capex(total) (600.0) (872.0) (1,372.0) (1,508.0) (1,280.0) (1,188.0) 30 10
Singapore (600.0) (600.0) (1,100.0) (1,100.0) (600.0) (100.0) 20
5
10
Japan 0 (272) (272) (408) (680) (1,088) 0 0
Dividend payments (361.0) (361.0) (361.0) (361.0) (361.0) (361.0) 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18 1Q19

Net inflow 186.6 (85.4) (585.4) (721.4) (493.4) (401.4)

Source: GENS, UOB Kay Hian
Beginning cash & cash 4,179.8 4,366.4 4,281.0 3,695.6 2,974.1 2,480.7
equivalent
Ending cash & cash 4,366.4 4,281.0 3,695.6 2,974.1 2,480.7 2,079.3
equivalent
Source: UOB Kay Hian

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R e g i o n a l M o r n i n g N o t e s Friday, 25 October 2019

PROFIT & LOSS BALANCE SHEET

Year to 31 Dec (S$m) 2018 2019F 2020F 2021F Year to 31 Dec (S$m) 2018 2019F 2020F 2021F
Net turnover 2,539 2,605 2,678 2,774 Fixed assets 4,857 4,962 4,953 4,757
EBITDA 1,230 1,195 1,221 1,258 Other LT assets 384 163 163 163
Deprec. & amort. 316 309 308 296 Cash/ST investment 4,214 4,745 5,180 5,866
EBIT 914 886 913 962 Other current assets 311 319 325 332
Associate contributions 4 4 4 4 Total assets 9,767 10,189 10,621 11,119
Net interest income/(expense) 36 46 56 82 ST debt 206 206 206 206
Pre-tax profit 943 936 973 1,047 Other current liabilities 656 691 707 728
Tax (188) (186) (194) (209) LT debt 832 832 832 832
Minorities 0 0 0 1 Other LT liabilities 291 291 291 291
Preferred dividends 0 0 0 0 Shareholders' equity 7,781 8,168 8,584 9,061
Net profit 755 750 779 840 Minority interest 0 0 0 0
Net profit (adj.) 767 750 779 840 Total liabilities & equity 9,767 10,189 10,621 11,119

CASH FLOW KEY METRICS

Year to 31 Dec (S$m) 2018 2019F 2020F 2021F Year to 31 Dec (%) 2018 2019F 2020F 2021F
Operating 1,146 1,086 1,097 1,148 Profitability
Pre-tax profit 943 936 973 1,047 EBITDA margin 48.4 45.9 45.6 45.4
Tax (181) (186) (194) (209) Pre-tax margin 37.1 35.9 36.3 37.8
Deprec. & amort. 292 309 308 296 Net margin 29.7 28.8 29.1 30.3
Associates n.a. n.a. n.a. n.a. ROA 7.8 7.5 7.5 7.7
Working capital changes (8) 28 10 13 ROE 9.9 9.4 9.3 9.5
Other operating cashflows 101 0 0 0
Investing (105) (200) (300) (100) Growth
Capex (growth) (120) (200) (300) (100) Turnover 6.1 2.6 2.8 3.6
Investments 0 0 0 0 EBITDA 6.8 (2.9) 2.2 3.0
Proceeds from sale of assets 15 0 0 0 Pre-tax profit 9.7 (0.8) 3.9 7.7
Others (1) 0 0 0 Net profit 25.7 (0.8) 3.9 7.8
Financing (664) (355) (363) (362) Net profit (adj.) 18.3 (2.2) 3.9 7.8
Dividend payments (422) (363) (363) (363) EPS 18.7 (2.2) 3.9 7.8
Issue of shares 0 0 0 0
Proceeds from borrowings 0 0 0 0 Leverage
Loan repayment (214) 0 0 0 Debt to total capital 11.8 11.3 10.8 10.3
Others/interest paid (28) 8 0 1 Debt to equity 13.3 12.7 12.1 11.5
Net cash inflow (outflow) 377 531 435 686 Net debt/(cash) to equity (40.8) (45.4) (48.2) (53.3)
Beginning cash & cash equivalent 3,834 4,214 4,745 5,180 Interest cover (x) n.a. n.a. n.a. n.a.
Changes due to forex impact 3 0 0 0
Ending cash & cash equivalent 4,214 4,745 5,180 5,866

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R e g i o n a l M o r n i n g N o t e s Friday, 25 October 2019

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