Highlights

Slowdown in global economy have impacted RWS’, experiencing continuous decline in rolling chip volume. However, we believe the level has reached its trough and will gradually improve going forward.

Revenue split between VIP and mass reached 50:50 in FY12 and is expected to maintain at the current level or improve further with heavier weightage from mass market due to better gross gaming revenue (GGR) stability.

Singapore’s low gaming tax rate makes GenS more appealing compared to its regional peers, making casino business more profitable from wider margins. Compromised margins in the past from West Zone expansion (now complete) is expected to improve gradually from now onwards.

The earnings boosts from International Market Agents (IMAs) were not seen, but believe it had helped GenS’ level of trade receivables indirectly and this is positive to the group.

Although non-gaming operations are expected to grow, GenS’ revenue and earnings will still be driven by gaming operations due to its large base.

The Japanese market would interest GenS, given its large market size within its leisure market from pachinko industry as well as Japanese who travels to casinos in S.Korea (>40% of total patronage are Japanese).

Catalysts

Stronger-than-expected growth in gross gaming revenue (GRR) as well as patronage volume from both VIP and mass market.

Level of trade receivables continues on a declining trend.

Encouraging attendance to S.E.A Aquarium and Adventure Cove Waterpark in Marine Life Park (MLP) to further boost non-gaming division.

Potential of international expansion (focusing on the East), especially within Genting Group’s core competencies.

Risks

1) Regulatory risk; 2) Further decline in RWS’ market share to MBS; 3) Weaker-than-expected hold percentage in the VIP segment; 4) Worsening in economic condition; and 5) Failure in casino license renewal.

Forecasts

We are assuming Singapore’s rolling chip volume to grow at 10% p.a., with RWS holding a 48% market share and a conservative hold rate of 2.8%. Thus, GenS’ EPS is expected to grow 15-20% in FY13-14.

Rating

HOLD

• Positives – (1) Duopoly industry; and (2) Lower tax rates compared to regional peers.
• Negatives – (1) Highly regulated industry; and (2) Earnings from gaming operations are highly dependable on luck factor and hold rates.

Valuation

Initiating with a HOLD recommendation and TP of RM1.58 based on 11.5x FY13’s EV/EBITDA.

Source: HL Bank Research - 13 Mar 2013