Target Price – Genting Singapore

Posted: July 6, 2010 in Uncategorized

Why Diverse Views On Resorts World Sentosa?
 
6 July 2010 Tues   
Professional Ground commentary
 
 
The recent report in The Business Times shows that the analysts out there have yet to “sort out” the equation for Genting Singapore’s earning capability over the near to mid term horizon. In particular casino revenue achievable by Resorts World Sentosa?
To cut long story short, Professional Ground panel’s assessment is as follow:
* First thing first, nobody is really sure about the size of casino market here? At Professional Ground, we are certain that this market is “not that big” as some optimistic investment analysts and banks/private equaty funds from Wall Street have hoped for. From observation, the low grind Malaysian busing visitors are not able to create large enough mass market phenomenon like Macau and Las Vegas. Analysts should pay attention to overall table utilization rates and average bets at the two IR casinos. “Graveyard shift” period is long.
* It is assessed that total gross casino revenue (not Ebitda) for the two IRs maybe in the range of USD3b combined. 
* Key factor is illustrated as follow:
– For Macau, propensity for gaming can be as high an average of 70% out of every $100 budget. i.e. High risk-taking behaviour.
– For Southeast Asians, propensity for gaming is likely to be average of 20% out of every $100 budget.

Reasons: high saving rates, high priorities for owned property (huge mortgage market) and saving for education funds. This is especially so for singapore domestic market. Basically, risk-averse.

* Local casino gaming particpation rates is “capped’ within 1/3 of daily pax to casinos (averaged 8,000 – 10,000 daily trips by locals), in view of imposed entrance levy. This is too low the number for sustaining the two casinos based on required domestic market contribution. To do well, the casinos need to acquire & sustain at least 2/3 (avearged 18,000 – 20,000) of local pax on total daily casino trips.

* VIP gaming business is turned into “pseudo vip players” syndrome by the junkets and casinos. This sector will take a long gestation period to grow in size due to tight regulatory control over the junket channel. It will remain highly volatile due to lack of sustainable high-turnover of chips. That will add more pressure to credit risk exposure by casinos.

* Mainstream non-gaming revenue for RWS is Done. RWS’s prime attraction Universal Studios ends up another luke warm park. Star item/ride such as the rollercoasters are cold-storaged till further notice. When the world’s largest Universal Studios themepark commences in South Korea by 2014, RWS’s themepark is sure to become another old history. In this field of tourism attraction, size matters!

The current trends of Genting Singapore share prices do not reflect its weak capability coupled to a much smaller gaming market here. The “show” has just started and due to lack of detailed information been released by operator as well as no published report/stats by gaming regulator, expactations are pushed too high just based on hope. We may agree with Morgan Stanley’s projection of Genting Singapore target price (i.e. 94 cents) with possibly additional 30% upside; Citigroup’s assessment is deemed pessimistic (target price of 65 cents) and Macquaire Equities (target price of $1.30) maybe overly optimistic.

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