Genting IR Expansion Plan – Buy or Hold?

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In 2006, Genting was awarded the Sentosa integrated resort project by Singapore. It was officially open in 2010. The integrated resort is in operation for close to 10 years.

Last week, Genting announced it will invest S$4.5b in a renewal and refresh of the IR. The funding will be by internal funds and borrowings (which will likely start only from end-2020).



The project will take 5 years to complete and approximately 50% new gross area, adding 164,000 square meters of GFA of leisure and entertainment space. Developments and enhancements that will be carried out in connection with the Expansion Development, include the following:

  • Expansion of Universal Studios Singapore, with two (2) new highly themed and immersive environments – Minion Park and Super Nintendo World;
  • Expansion of the S.E.A. Aquarium to be re-branded as “Singapore Oceanarium”;
  • Conversion of the Resorts World Theatre into a new Adventure Dining Playhouse;
  • Expansion of in-resort accommodation with up to 1,100 more hotel rooms at a new waterfront lifestyle complex and within the central zone of Resorts World Sentosa (“RWS”);
  • An enhanced waterfront promenade to be lined with restaurants and retail outlets, and a spectacular public attraction;
  • Expansion of Meetings, Incentives, Conferences and Exhibitions (MICE) facilities which will bring in more events into Singapore; and
  • Development of a driverless transport system (“DTS”) which will enhance last-mile connectivity to bring greater footfall to RWS and the rest of Sentosa Island.

Gaming Revenue

The casino will be able to expand its floor area by 500 sqm once the above is complete. The exclusivity casino license is extended to 2030.



From March 2022, both IRs will have to pay higher casino tax rates under a new tiered structure. Premium gaming will be taxed at 8% for the first S$2.4b of gross gaming revenue, and 12% for gaming revenue in excess of S$2.4b. Mass gaming will be taxed at 18% for the first S$3.1b and 22% for any excess revenue.

On top of the revised taxes, Singapore citizens and permanent residents will have to pay higher entry now, rising 50% to $150 for 24 hours.

Genting Performace

The company revenue is constantly at S$2 billion mark. During the econnamy downturn in 2015 and 2016, the company still manage to have a nett profit of S$193 mil and S$384 mil.

Source: Bloomberg

Earning per shares increased from 0.62 cents in 2015 to 6.27 cents in 2018. Dividends per share maintained for 2017 and 2018 at 3.5 cents per share.

Source: Genting Singapore

Conclusion

The golden question, to buy or hold?



With the upcoming Capex and fundings, I believe can adopt a wait and see attitude. Currently, the price is trading at $0.975 and P/B of 1.5x. I believe it can go lower and hopefully can go to $0.85 range for a 4% yield.

The impact will be known after end 2020 or beginning of 2021 not forgetting Genting is currently also bidding for IR projects in Japan.

However, Genting committed that there will be no change in the distribution of dividends in lieu of the increasing Capex.

Author: The Financial Guy

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