By Xavier Kong
Analysts maintained a neutral stance regarding the announcement of Resorts World Jeju (RWJ), claiming that headwinds would cause accretions to be minimal for the casino resort.
Genting Berhad’s (Genting) 52%-owned subsidiary Genting Singapore (GenS) confirmed the deal to build a new casino resort in South Korea’s Seogwipo City, with the deal a joint venture with Chinese property developer Landing International Development Ltd (LIDL). Construction would begin in June this year, with RWJ slated for an official opening in 2017.
However, with 17 casinos in the country, and there already being eight casinos on the island itself, not to mention the prohibitive laws regarding the casinos in the country that would allow RWJ to only be patronized by foreigners, analysts are not optimistic about this announcement.
“Considering the number of casinos available, the gaming market is relatively small, with total casino revenue of USD2.1 billion in 2011, compared to Singapore’s USD6 billion.” said Public Investment Bank, who opines that the growth is limited by the government’s ban on local visitations, as more than 50% of the total gaming revenue is generated by the Kangwon Land casino alone.
The Kangwon Land casino is the only casino in South Korea where locals are allowed to play.
“Although no details were divulged, we believe GENS’ Jeju casino will open to foreigners only, targeting mainly Chinese and Japanese players.” said UOB Kay Hian, who also noted that besides the Jeju project, GenS had also entered a conditional subscription agreement to buy 810 million new LIDL shares (5% of the enlarged share capital) at HKD0.30/share, or HKD243 million (SGD40 million).
RHB Investment Bank notes that funding should not be an issue for GenS, given GenS’ sturdy annual operating cash flow of over SGD1bn and its healthy balance sheet, with net gearing of 0.1x as of Sept 2013.
However, TA Securities is positive on this announcement, “as it will bring Genting closer to those high rollers in China, who are currently flocking to Macau to gamble and shop.”
TA opines that RWJ will provide an earnings boost and enhance the market share of Genting in Asia, while diversifying earnings risk further.
PIVB maintains a neutral recommendation on Genting, with an unchanged target price of RM10.42. RHB and UOBKH both had ‘hold’ calls on GenS, with target prices of SGD1.49 and SGD1.42 respectively. Alliance Research maintains their recommendation of a trading buy on Genting with an unchanged target price of RM12.50, with the price subject to review following the release of the group’s 4Q results on February 27th. TA maintains its sell recommendation on Genting, with an unchanged target price of RM10.56.
Genting ended the trading day at RM10.16, up 10 sen, while GenS ended the trading day at SGD1.415, up 2.5 cents.
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