Towards Financial Freedom
Genting Singapore - Expensive valuations SELL
- We are downgrading Genting Singapore PLC (GenS) from HOLD to SELL as valuations have become excessive following the rise in the group's share price.
- GenS is currently trading at a FY13F PE of 25.1x compared with the simple average PE of the Macau casino companies of 15.1x.
- GenS is also more than 50% more expensive than Genting Malaysia Bhd (GenM) and Genting Bhd, which are currently trading 12x to 15x of FY13F earnings.
- We forecast GenS' EV/EBITDA at 11.9x for FY13F. However according to Bloomberg, consensus is estimating an EV/ EBITDA of 13.8x for GenS, which is higher than the simple average EV/EBITDA of 12.0x of the Macau casino companies.
- We believe that GenS' share price has been rising on the back of a potential recovery in the VIP volume of business. Due to the economic improvement in China, VIP casino patronage and volume of business from the country are expected to increase.
- However, we reckon that the earnings recovery has already been reflected in GenS' profit estimates and share price. We are forecasting GenS' net profit to climb 17.8% to S$781.5mil in FY13F. Consensus are expecting GenS' net profit growth at 13.0% in FY13F.
- Although Marina Bay Sands (MBS) reported a 39.7% surge in the volume of VIP business from 3QFY12 to 4QFY12, we understand that the VIP market in Singapore is very concentrated.
- We surmise that the jump in MBS' VIP volume of business in 4QFY12 could be due to a few customers generating huge volume of play. It remains to be seen if GenS had also benefited from the same customers in 4QFY12. GenS is scheduled to release its 4QFY12 results on 21 February 2013.
- GenS' EBITDA margin is expected to improve from midFY13F onwards. In the short-term, the group's EBITDA margin is envisaged to remain soft due to operating expenses relating to the Western Zone.
- As for mergers and acquisitions, we reckon that it would take time for the Japanese Government to liberalise the casino industry. From MBS' conference call, we understand that the Japanese Government has set up an inter-party commission comprising 125 members, to study on the issue of the integrated resort cum casino.
Source: AmeSecurities
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