Resorts World Sentosa (RWS) is an integrated resort owned by Genting Singapore. It is well-known for it operates one of the only two casinos in Singapore, and the only Universal Studios theme park in Southeast Asia. While the casino and the theme park are no doubt the main attractions, RWS offers a lot more than these that make it a top integrated resort.

S.E.A. Aquarium

RWS operates a world-class aquarium which houses 100,000 marine animals. It is the world’s second largest oceanarium with many attractions. Visitors can follow the Trail of Fortune to discover eight auspicious animals like the foxface rabbitfish and learn how their amazing traits make them symbols of plenty.

During Chinese New Year, visitors may welcome a prosperous year with The Sea Dragon Rises, Singapore’s only underwater dragon dance which is making an auspicious come-back after a three-year hiatus. Visitors may gather around Ru Yi the Mermaid as she shares stories about her marine friends and how we can protect their homes.

Before Covid-19 pandemic started in 2019, RWS welcomed over 20 million visitors a year. An estimated 25% of the visitors chose to visit S.E.A. Aquarium.

Adventure Cove Waterpark

The Adventure Cove Waterpark in Sentosa features seven water slides, including the region’s first hydro-magnetic coaster, Riptide Rocket. It also features pools like Bluewater Bay. The Adventure River, the 610-metre (2,030 ft) river, one of the world’s longest lazy-rivers, has 13 themed scenes of tropical jungles, grottoes, a surround aquarium and more.

Other Attractions

The Maritime Experiential Museum was built in Oct 2011 to house the Jewel of Muscat. It has since 2020 become part of the new Singapore Oceanarium, an expansion of the S.E.A. Aquarium. There is also the Dolphin Island which may be part of the aquarium.

Visitors can spend leisure time and do shopping in FestiveWalk shopping mall and Galleria Luxury Fashion. There are a wide range of restaurants there for visitors to choose from, including notable ones like Tunglok Heen, Osia, Palio, Feng Shui Inn and Forest.

Accommodation to cater for various tastes

RWS offers various types of accommodation: Equarius Villas, Crockfords Tower, Equarius Hotel, Hard Rock Hotel Singapore, Hotel Michael, Equarius Ocean Suites, Equarius TreeTop Lofts and Genting Hotel Jurong. It offers a total of over 1,800 rooms across 7-8 hotels.

Based on the visitation of 20 million a year before the pandemic, even a low 10% of visitors requiring accommodation will make these 1,800 rooms almost fully occupied throughout the year.

There are more than enough activities to keep visitors busy all day long. Kids and teenagers can keep themselves busy whole day at Universal Studios and Adventure Cove Waterpark, family with kids and elderly can emerge themselves in the vast marine life experience in S.E.A. Aquarium and Maritime Experiential Museum, hotel guests can have some beach volleyball or water sports at the sunny beach or just relax with a cocktail drink at the beach bar or join in a bubble night party at the beach, diners will have a wide selection range of cuisine to tame their taste buds, shoppers have access to whole range of branded goods and luxury items, and gamers can have fun in the casino 24/7. Resorts World Sentosa always has something for everyone. That is enough to encourage visitors to stay a night or two at RWS, paving the way for expansion to add more quality accommodation.

Non-Gaming Revenue

Due to the various world-class attractions besides gaming entertainment at RWS, it is not surprising to see that Genting Singapore has one of the highest non-gaming revenue proportion among regional casinos. Non-gaming revenue made up 26.4% of total revenue of Genting Singapore for the quarter ended Sept 2022, compared to an estimated 13% for Genting Highlands Malaysia and well below 10% for Macau casinos.

Just for sanity checks, assuming the 1,800 rooms at RWS enjoy an average 97% occupancy at S$200 per room per night, the gross revenue generated from hotel room accommodation will amount to S$128 million a year.

The star attraction S.E.A. Aquarium will pull in gross revenue of S$180 million a year assuming 5 million visitors at average entry ticket price of S$36 per pax.

There is plenty of scope for RWS to increase visitation to its Universal Studios and S.E.A. Aquarium when new attractions are added over the next few years with the RWS 2.0 expansion plans. RWS can aim to achieve visitation to at least challenge those of Hong Kong Ocean Park at 5.7 million, Hong Kong Disneyland at 5.695 million, or even Universal Studios Japan at 14.5 million and Tokyo Disneyland at 17.9 million in 2019.

Resorts World Sentosa 2.0

Marina Bay Sands (MBS) and Genting Singapore have committed an estimated S$4.5 billion each in non-gaming investments in an effort to maintain competitive with other destinations in the region, and bring in more than half a million additional visitors annually, as announced by the Ministry of Trade and Insudtry (MTI), Ministry of Finance, Ministry of Home Affairs, and Ministry of Social and Family Development of Singapore in 2019. The two integrated resort (IR) expansions are said to create up to 5,000 new jobs.

“The additional investment by the IRs is almost two-thirds their initial investment in 2006 (of about S$15 billion),” the agencies added. “In view of the substantial investment and to provide business certainty, the government has agreed to extend the exclusivity period for the two casinos to end-2030. No other casinos will be introduced during this period.”

MBS will add to the Singapore skyline by constructing a new fourth tower adjacent to its existing three towers. “The centerpiece of the expansion is a 15,000-seater state-of-the-art entertainment arena, which will host a mix of A-list artistes and events arising from MBS’ proposed collaboration with entertainment content providers,” MBS said.

Meanwhile, Genting Singapore will inject some S$4.5 billion over the next 5 years to expand the IR at RWS, which will add approximately 50% or 164,000 sqm of new gross floor area (GFA) of leisure and entertainment space, the firm revealed. The project will include the following:

·         Expanding Universal Studios Singapore, with two immersive environments Minion Park and Super Nintendo World

·         Expanding the S.E.A. Aquarium to be re-branded as Singapore Oceanarium

·         Converting the Resorts World Theatre into a new Adventure Dining Playhouse

·         Expanding its in-resort accommodation with up to 1,100 more hotel rooms at a new waterfront lifestyle complex and within the central zone of RWS, and

·         Development of a driverless transport system to enhance last-mile connectivity and bring greater footfall to RWS and the rest of Sentosa Island

“Universal Studios Singapore will feature a highly immersive themed zone, Minion Land. At the same time, S.E.A. Aquarium will be significantly enhanced and rebranded as the Singapore Oceanarium. The upgraded attractions will form two key components of RWS 2.0, and are envisioned to become Singapore’s new tourism icons and purposes of visits. Together with other refurbishment works, construction will commence with about S$400 million to be spent as project investment in 2022.”

“Minion Land will thrill and delight audiences of all ages with its popular and mischievous Minions from Illumination’s Despicable Me. New adventure will be in store at the expansion zone, where there will be multiple rides including a world’s first original ride exclusive to Universal Studios Singapore, and Despicable Me Minion Mayhem , an immersive motion-simulator 3D ride featuring a hyper-realistic projection system. Themed shops as well as restaurants in this new zone will appeal to multi-generation guests.” RWS said in a press release.

“Complimenting the high-tech entertainment of Minion Land, the Singapore Oceanarium (SGO) will boost the quality of visitors’ experience as a first-class institution that champions marine education and protection of our environment. To be three times the size of the current S.E.A. Aquarium, it will showcase a large scale and depth of content than before, brought to life through state-of-the-art digital innovation and interactive technology. “

“SGO will also encompass a Research and Learning Centre which will be carbon neutral. Fully equipped with immersive learning labs, collaborative workspaces, seminar rooms and a roof-top event space, the Centre will augment SGO’s robust educational offerings and provide advanced facilities for scientists and researchers to conduct valuable research work and drive marine science outreach on-site. Its aims are to catalyse the test-bedding of innovative solutions for real world challenges, and empower students and the community at large with hands-on learning experiences. S.E.A. Aquarium will remain open as expansion work to elevate it to Singapore Oceanarium begins in the send half of 2022.”

“In addition, RWS will refurbish three of its hotels, namely Hard Rock Hotel Singapore, Hotel Michael and Festive Hotel which collectively offers over 1,200 keys. These hotels will undergo renovation in phases from the second quarter of 2022 through 2023. When completed, Festive Hotel will be re-fashioned into a bleisure (business-leisure) and workation (work-vacation) hotel with a variety of mobile working spaces and lifestyle offerings that will meet new work trends. To strengthen RWS’s position as a premier business destination, a facility refurbishment and upgrade is also planned for Resorts World Convention Centre.”

Initial assessments show that the 1,100 additional hotel rooms to be added in RWS 2.0 expansion shall be fully taken up with the half a million additional visitors anticipated. It is conservative to assume that the expansion will be able to bring in additional 1 million visitors to the non-gaming facilities (Note: Universal Studios Singapore shall have 5.5 million visitors per year, still short of visitation to Hong Kong Ocean Park or Disneyland, S.E.A. Aquarium shall be able to raise ticket pricing from currently S$36 to S$50 after the expansion that will almost double its aquarium space). Hence, the additional revenue to be brought along by the expansion is substantial:

            Hotel:   1,100 x 365 x S$250 = S$100 million / year

            Universal Studios :  1,000,000 x S$80 = S$80 million / year

            S.E.A Aquarium :     1,000,000 x S$50 = S$50 million / year

Assuming half of the budgeted S$4.5 billion is to be spent to add these 1,100 new hotel rooms and enhance visitation to Universal Studios and S.E.A. Aquarium, the additional revenue (S$230 million a year as calculated above) would be able to cover the cost of the investments of say S$2.3 billion to at least make the investments NPV positive.

For the rest of the expansion, I will not make any projection as there is lack of details at the moment. For now, I just ignore the benefits to be brought about by the expansion projects, assuming those will be NPV neutral at the minimum. I shall just focus on RWS existing facilities and financials to estimate the valuation.

Financial Summary of Genting Singapore

RWS has been the major income source to Genting Singapore. A summary of the financial performance for Genting Singapore in its peak year of 2013 and latest 2022 is tabulated below:

In comparison, Marina Bay Sands (MBS), the other casino in Singapore, reported revenue of S$1.08 billion and EBITDA of S$490 million for 3Q 2022 (EBITDA margin 45.4%). Hotel occupancy for MBS for the 3Q averaged 96% and the revenue per available room improved to S$494. In the recently released 4Q 2022 results, MBS doubled its revenue to US$682 million or S$907 million (from US$368m in Q4 2021) and increased EBITDA to US$273 million or S$363 million (from US$177m in 4Q 2021) (EBITDA margin 40.0%). Hotel occupancy grew further to 98.3% while average hotel daily rate rose to US$550 or S$731 (more than double from US$259 a year ago).

Improving Outlook for 2023

With tourists from China allowed to travel out from 8 Jan 2023, the outlook for Genting Singapore is turning bright in 2023. Singapore Tourism Board on 17 Jan 2023 released a bullish forecast for international visitor arrivals to Singapore to hit 12 to 14 million in 2023, with full tourism recovery expected by 2024. Tourism receipts are expected to climb to S$18 billion to S$21 billion in 2023. This is considerably higher than the actual international visitor arrivals of 6.3 million and estimated tourism receipts of S$14 billion in 2022.

It is reported that China tourists prefer RWS to MBS as there are a lot more attractions at Sentosa. Hence there is no reason why RWS shall not achieve similar revenue as of MBS, especially now with international visitor arrivals in Singapore doubling from 2022.

It is hence safe to assume that RWS shall achieve 40%-50% increase in total revenue to S$2,800 million to S$3,000 million in 2023 (which will match its revenue 10 years ago in 2013) and thereafter S$3.4 billion a year (about 85% of MBS’ revenue). Assuming a same EBITDA margin of 48.6%, Genting Singapore may achieve EBITDA of S$1,400 million in 2023 and then S$1,650 million thereafter.

Valuation of Genting Singapore

Casino stocks are generally valued in terms of EV/EBITDA. I reproduce the valuation comparison of Genting companies vs Macau casino companies from my previous article and add in Genting Singapore as follow:

*figures taken from MarketScreener      ^figures from Maybank Research

As can be seen above, Macau casinos are trading at EV/EBITDA multiples of over 24x which are high. If I take a 20% discount to Macau casinos’ valuation and apply a 20x EV/EBITDA valuation to Genting Singapore, I shall arrive at an Enterprise Value (EV) of S$1,650m x 20 = S$33.0 billion. As Genting Singapore has net cash of about S$3.1 billion, hence the equity value for Genting Singapore shall be S$36.1 billion or S$3.00 per share.

A 20x EV/EBITDA for Genting Singapore is not excessive as it implies a free cashflow yield of over 4.0% (given minimum capex for existing facilities), which is good in Singapore where Average Overnight interest rate is 3.36%. Furthermore, Genting Singapore has touched such valuation before in 2011 when it reported EBITDA of S$1.2 billion while share price was trading at S$1.80 average to a high of S$2.20 per share, giving it an EV/EBITDA valuation of (S$1.80 x 12.24b - S$1.5b)/S$1.2b = 17.0x to (S$2.20 x 12.24b - S$1.5b)/S$1.2b = 21.2x.

Even if I take a more “normalized” EV/EBITDA multiple of 13.3x (which was the average for Sands China and SJM in 2019), I shall arrive at an EV of S$1,650m x 13.3 = S$22.0 billion. Plus the S$3.1 billion net cash, Genting Singapore shall be valued at S$25.1 billion or S$2.08 per share.

I see a good chance for this target price to be achieved in next 12-18 months as Genting Singapore reports record earnings in next few quarters. As a reference, Genting Singapore share price touched a peak of S$2.20 per share in 2011 when its EBITDA hit a high of almost S$1.2 billion. As Genting Singapore reports record EBITDA of S$1.4 billion (18% higher than 2011-2013 peak) to S$1.65 billion (40% higher) in next 2 years, its share price should catch up to previous valuation, average S$2.20 x 1.18 = S$2.60 to peak S$2.20 x 1.40 = S$3.08.

A Potential Take-over Target

In July 2022, newswires reported that Genting Singapore had attracted multiple suitors, one of which was MGM Resorts International, interested in taking over the integrated resort. The US casino operator reportedly approached tycoon Tan Sri Lim Kok Thay, prompting Genting Singapore’s share price to rise by as much as 9.3% on July 15 following the news report. In response to the Singapore Exchange’s unusual trading query, Genting Singapore said it was not aware of any ongoing discussions concerning any potential transaction. It said that Lim had received an unsolicited approach for Genting Bhd’s shares in the company, and that the approach had not been pursued.

It is not surprising to see many suitors interested in a stake in Genting Singapore as the country is recovering from Covid-19 pandemic and China is opening up its borders. Back in July 2022, analysts generally thought that it was unlikely for Genting Bhd to sell its stake in Genting Singapore as it is the champion asset of the group.

For MGM to be interested in Genting Singapore, it must have been seeing huge potential and upsides in Genting Singapore from the share price of S$0.80 in July 2022. This was so as its casino in Macau was not doing well and MGM might want exposure to another market in Asia. Singapore would be the natural choice given the bright prospects of Singapore economy and currency as the country recovered.

MGM China share price was trading at HKD4.00 level in July 2022, but has since risen some 150% to HKD10.00 level. As such the valuation has gone up from 10x EV/EBITDA to now 24x EV/EBITDA. Genting Singapore at a valuation of 7x EV/EBITDA is extremely cheap relative to MGM China or any other casino group in Macau.

Implied Valuation to Genting Bhd

As Genting Bhd owns a 52.5% stake in Genting Singapore, the value accretion to Genting Bhd would be tremendous should the share price of Genting Singapore appreciate towards the fair value of S$2.08 – 3.00 (110% to 200% upside) in coming months.

Genting Singapore share price has jumped up some 32% since a low of S$0.76 in Oct 2022 to the current level of S$1.00, while Genting Bhd share price has gone up only by 10% from the RM4.40-4.50 level in Oct 2022 to currently RM5.00 level. The 32% rally in Genting Singapore share price since Oct 2022 would have added a value of S$1.4 billion or RM4.6 billion or RM1.19 per share to Genting Bhd, but the latter has only added RM0.45 to its share price. Genting Bhd should be going up to RM5.60-5.70 level to reflect the rally in Genting Singapore share price.

At current level of S$1.00 per share, the stakes in Genting Singapore is worth S$6.2 billion or RM20.5 billion or RM5.30 per share to Genting Bhd. This shows that Genting’s stakes in Genting Singapore alone is worth higher than the entire market capitalization of Genting Bhd, which means investors are getting all the other assets of Genting Bhd for free!!

Genting Bhd still owns other valuable assets like Genting Malaysia, Genting Plantation, TauRx pharmaceutical company, some power and oil & gas assets. A snapshot of valuation for Genting derived in my earlier article (link below) is given below:

https://klse.i3investor.com/web/blog/detail/dragon328/2023-01-06-story-h-301897649-Genting_Bhd_Strikes_Gold_in_the_US

*based on valuation by Maybank research

In the above valuation, Genting Singapore was valued at an earlier target price of S$1.08 per share. Should Genting Singapore be revalued to the value of S$2.08 as derived above, it would add a value of S$6.3 billion or RM20.9 billion or RM5.50 per share to Genting Bhd to a total equity value of RM28.00, which is 570% of current share price.

In a bluesky case, if Genting Singapore overshoots to S$3.00, it would add a value of S$12.2 billion or RM40.2 billion or RM10.30 per share to the equity value of Genting Bhd, which would then total RM32.80 per share.

Back in 2011-2012, Genting Bhd was trading at RM10.00 level, with analysts giving a 10%-20% discount to sum-of-parts valuation. Genting Singapore was trading at S$1.50 level (RM3.65) then at MYR:SG$ exchange rate at 2.43:1.00 in 2011-2012. Now Genting Bhd is trading at RM5.00 level with discounts to sum-of-parts as wide as 70-80%, while Genting Singapore is trading at S$1.00 level (RM3.30) with exchange rate now at 3.28-3.30. As Genting Singapore has gone up almost back to its 2011 level in RM terms, shouldn’t Genting be re-rated back to its 2011 valuation of RM9.00-10.00 level? The market is obviously mispricing Genting Bhd with an unjustifiable discount.