Highlights

We met up with GenS’ CFO last Friday to get further updates on the company.

Mass market volume is most likely to grow in tandem with GDP while rolling chip volume could potentially grow further. The impacts from International Market Agents (IMAs) are still negligible at this point in time.

GenS have applied a more stringent credit “policy” where players are evaluated on a per-trip basis as compared to a permanent credit line previously.

The group will be starting to write-off their receivables this year and it will be reviewed on an annual basis.

Ticket prices for the attractions in Marine Life Park (MLP) have been raised by SG$4 for adults (to SG$33) and SG$3 for children and senior citizens (to SG$23).

Refurbishing and upgrading works have started on the hotels in RWS to maintain its “high-class” status and fulfil its VIP guests’ requests.

The hotel in Jurong will be a 3.5-star hotel with 550 rooms. This development would cost approx. SG$100-150m and expected to commence operations by 1HFY15.

Management highlighted that should the casino ban in Japan is lifted and GenS gets a license there, the scale will be much larger than RWS and it would cost approx. SG$10bn. It will be a long-term project that would only commence operations by 2020-2021.

With more than 3 years of experience, GenS is now more familiar with the consumer’s behaviour and visitor’s trend. Through that, GenS is now more proactive in carrying out advertisings and promotions, mainly through package pricings.

GenS continue to maintain its internal margin target of between 45-50% and emphasized that 2HFY13 will be more exciting as there would no long be any pre-opening expenses incurred.

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

Unchanged.

Rating

BUY

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

We are upgrading our recommendation to BUY with unchanged target price of SG$1.58 based on 11.5x FY13’s EV/EBITDA as the total return now have exceeded 10%.

Source: Hong Leong Investment Bank Research - 10 Jun 2013