Company Name: GENTING SINGAPORE PLC
| Research House: UOB KayHian | Price Call: BUY | Target Price: 1.89 |
Good morning,
CRA has awarded 2 licenses to two Malaysian-based junket operators who have been authorised to organise junket activities at RWS. This fulfills our expectations that junket licenses would be approved and awarded in 1H12 and Asean-based operators would be first to receive the licenses.
The award of junket licenses would have moderately positive impact on GENS' VIP GGR and will see market share expansion.
Maintaining our BUY call on GENS with a target price of S$1.89. This new development should provide modest upside to share price.
For follow up questions, please contact myself or Vincent.
Regards,
Genting Singapore (GENS SP) BUY
Baby steps on junket licensing
Price / Tgt: S$1.63/1.89 Mkt Cap (US$b): 15.7 3-mth Avg Daily Vol (US$m):88.1 1-Yr Hi/Lo: S$2.24/1.42
What's New
· CRA awarded junket licences! The Casino Regulatory Authority (CRA) announced it has awarded licences to two International Market Agents (IMAs) (refer to table on overleaf for more information) late yesterday evening. The two 1-year licences or better known as junket licenses have been awarded to two Malaysian-based operators - Huang Yu Kiung and Low Chong Aun. Both junket operators are authorised to organise, promote or conduct junket activities at Resorts World Sentosa (RWS).
· This new development fulfills our expectation that junket licences would be awarded in 1H12 and Asean-based operators would be first to receive the licences. This gives hopes that CRA would be awarding more junket licences.
· However, a long wait for junket to gain significance? We understand there are 12 junket applicants who were not successful, with most of them being the significantly bigger Macau-based and other Asean-based operators. This suggests that CRA would continue to be very circumspect in issuing licences in the intermediate term, ie issuing more licences to relatively small and non-Macau operators. This controlled issuance is probably a deliberate way to ensure CRA's enforcement of tight conditions and procedures.
Stock Impact
· Moderate impact on RCV. Junket licensing would probably expand the gaming industry 2012's VIP rolling chip volume (RCV) by less than 5%, given that only smallish operators are expected to be licensed for the time being (which suggests limited financing capabilities), and given CRA's tight conditions/procedures.
· Moderately positive. Given that both licences have been awarded to two junkets that have been authorised to operate at RWS, we reckon this could have a moderate positive impact on RCV which could help expand market share in the VIP segment.
Valuation/Recommendation
· Maintain BUY and target price of S$1.89, pegged at 12x 2012F EV/EBITDA. Share price is now trading at the lower end of its historical range of between S$1.60 and S$1.80. The stock is currently trading at 10.2x 2012F EV/EBITDA, much lower than its Macau peers. This new development can only provide a modest upside to the shares. Improving quarterly EBITDA trends following the increase in VIP hotel room capacity since Feb 12 will be the other catalyst to lift stock price.
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