Highlights

After all the worries on whether the casino gaming bill would be debated on the 2014 Diet session, the latest status of the bill is likely to be brought into the Extraordinary (EO) Diet in fall.

Japanese Prime Minister Shinzo Abe remains optimistic with the passing of the legislation and aims to pass it during the next session of parliament (EO Diet) to legalize casinos as part of its plan to boost tourism before the Tokyo Olympics 2020.

With Abe’s visit to Singapore in May to tour the gaming industry in the country has increased the likelihood of Japanese casino(s) replicating the casino model in Singapore.

We believe the implementation of casino entry levies towards locals (currently practices by Genting Singapore and Marina Bay Sands) would be considered as well to prevent/control crime and gambling dependency.

To recall, casinos in Singapore currently implements two types of casino entry levies: 1) Day Levy of SG$100 and 2) Annual Levy of SG$2,000.

Should the bill be passed in the EO Diet in fall, the bidding process for the operator(s) selection would roughly take a year. We gathered that the construction would take slightly longer time in Japan, raising doubts whether the integrated resort would be completed within the time period as initially planned.

Experts mentioned that among the ideas that were put on the table for discussion was to place a casino in an existing resort(s) in the country. However, the idea remains fresh and uncertain at this juncture.

Despite all this, we continue to remain optimistic with Genting Singapore’s involvement in the gaming liberalisation plan in Japan. Furthermore, the group is said to likely partnering with “Japanese Institutions” in bidding for a license.

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

Maintain BUY with unchanged TP of SG$1.68 based on FY15 EV/EBITDA multiple of 9.5x.

Source: Hong Leong Investment Bank Research - 16 Jul 2014