• EV/EBITDA at -1 SD below 5-year mean
• Potential 2017 story
• Maintain HOLD with S$0.95 FV

Pessimism likely priced in

Genting Singapore’s (GS) share price continues to languish around the S$0.90 region, just off fresh 52-week low of S$0.895, likely weighed by the lackluster VIP business outlook over the medium term, as well as the recent outbreak of MERS (Middle East Respiratory Syndrome) in the region, especially in South Korea. However, we believe that most of the pessimism should already been priced in. Note that GS’s EV/EBITDA is now trading at more than 1x SD below its 5-year average.

Sluggish VIP numbers well flagged

On the muted VIP business, GS has already warned for some time that VIP volumes are likely to remain sluggish in the medium term, as Chinese high rollers are still affected by the ongoing anti-graft campaign in China. While the collection of debt from these players remains challenging, management has taken steps to tighten its credit; it is also targeting more on the mass premium market.

MERS unlikely to have long-lasting impact

Also of concern is the spread of MERS in the region, which could affect air travel, and therefore, visitor numbers at RWS and USS. However, so far, international tourist arrival numbers have remained fairly stable at 1.2m in Apr. And as more people avoid going to South Korea due to the MERS outbreak there, some of these holidaymakers may eventually find their way to Singapore.  While GS is currently building an IR on Jeju Island, it would only be ready by mid-2017; this should give the global health authorities plenty of time to contain the outbreak.

Be patient; 2017 will be better

As before, we believe the GS is really a 2017 story and one with a strong overseas angle. The first being the opening of its integrated resort on Jeju Island, South Korea, and the second will be the building of IRs in Japan. For these reasons as also on valuation grounds, we maintain our HOLD rating on the stock with an unchanged fair value of S$0.95.

Source: OCBC Research - 8 Jul 2015