• With Yamanaka’s victory in the mayoral election, Yokohama’s efforts to host a casino resort in the city’s waterfront Yamashita Pier District is likely to be scrapped. Nevertheless, this does not change our investment thesis on Genting Singapore which remains as a major reopening beneficiary.
• Scrapping Japan IR bid could create some impairment cost, but more importantly, prompt cash-flushed Genting Singapore to improve its capital management. Maintain BUY with an unchanged target price of S$1.08.

Hardline Anti-IR Campaigner Takeharu Yamanaka Won Yokohama’s Mayoral Election

• Based on the exit polls conducted on Sunday (22 Aug), opposition-backed candidate - Takeharu Yamanaka had gathered 39.5ppt of ballot and is set to win the mayoral election after defeating seven other candidates. To note, Takeharu campaigned on a pledge to repeal the city’s plans to host an integrated resort (IR), having described casinos as a “poison apple”.

Genting Singapore (GENS) shortlisted for Yokohama RFP earlier.

• Genting Singapore (SGX:G13) and Melco Resorts (Melco) passed their qualification screening process in June to take part in the city’s Request-For-Proposal (RFP) to develop an IR. Genting Singapore formed a consortium with Japan’s Sega Sammy (one of the country’s largest pachinko game manufacturers) and Kajima Corp. Meanwhile, Melco partnered with local construction and civil engineering firm Taisei Corporation in the IR bid. If Yokohama’s IR plan is scrapped, Osaka, Wakayama and Nagasaki will be the only potential host cities for a Japan IR currently.

GENS previously also abandoned participation in Osaka’s RFP.

• To recall, Genting Singapore did not submit its RFP application within the deadline and withdrew from the Osaka race in Feb 20 to focus on Yokohama’s IR bid. This resulted in a consortium consisting of US casino MGM Resorts and Japan local financial group Orix Corp vaulting to the top spot of Osaka’s bid. Meanwhile, Genting Singapore will still participate in Tokyo’s bid if it is rolled out.

Failure to clinch a Japan IR concession does not change our BUY call for GENS.

• We expect Genting Singapore to significantly improve its RWS which will be completed in 2025.

Stock Impact

Japan IR unappealing to mega gaming operators...

• Japan IR is mostly shunned by other global gaming operators as witnessed from the withdrawals of most US bidders such as Las Vegas Sands, Caesars Entertainment Corporation and Wynn Resorts Limited. This is mainly due to high capex commitment, overly stringent regulatory framework (Japan’s gaming floor cannot be more than 3% of total space, resort have to be quite sizeable to sustain a gaming floor), as well as restrictions on local visits (backbone of casinos’ recurring customers) by charging entrance fees and limiting the number of visits.

Deep-rooted local resistance.

• Widespread public IR bid shows a challenging opposition of more than 63%.

…and controversial concession term.

• Japan’s current risk of failure to renew the licence.

We still like GENS for its envious proposition of being a major economic reopening beneficiary.

• Despite expecting that Genting Singapore’ 3Q21 results season will be significantly impacted as Singapore vaccines there.
• Moving forward, we expect Genting Singapore’s valuations to partially factor in earnings recovery and business normalisation in 2022.

Stellar vaccination rate pushing towards Singapore’s normalcy restoration…

• According to the latest government data, more than 79% even without eradicating the virus.

…and meaningful borders relaxations in 4Q21.

• In a plan laid out by officials, Singapore is eyeing the Pass, in lieu of a stay-home notice. Potential borders relaxation and travel arrangement initiations are sparking jubilation for Genting Singapore on the expected recovery of international patronage.

Earnings Revision / Risk

• None.

Valuation / Recommendation

• Maintain BUY call on Genting Singapore with an unchanged target price of S$1.08, which implies 8x 2022F EV/EBITDA (-1 standard deviation below mean).
• Genting Singapore’s dividend yield is expected to normalise to 4.1% in 2022, assuming revenue and cash flows recover back to pre-pandemic levels. Our valuation also assumes Genting Singapore’s Japan IR bid would not materialise.

Source: UOB Kay Hian Research - 23 Aug 2021