Highlights

Japan savoured its victory on Monday in the race to host the 2020 Olympic Games, anticipating a boost in economic to spur its revival from 2 decades of stagnation and help it recover from the devastating 2011 earthquake and tsunami, according to Reuters.

With the win, it could potentially expedite the approval of casino licenses in the country.

According to Bloomberg, the International Olympic Committee’s decision fuelled speculation that Japan will approve casino gambling since the development would add hotel capacity and entertainment venue that could be used during the games.

Since Japan announced its interest in liberalising the gaming industry, there have been plenty of gaming companies who showed interests in winning a gaming license besides GenS and Sands. Amongst them are MGM, Caesars, Melco Crown, SJM Holdings and not forgetting local players such as Sega Sammy.

Given that the casino proposal would be largely similar to the integrated resorts (IRs) in Singapore according to an official from Union Gaming, Sands and Genting Singapore (GenS) are likely to be the front-runners for the big licences. We believe yesterday’s share price strong performance was reflective of investors’ optimism about its chances in Japan.

Should GenS wins the bid for Japan’s casino license, the timeline above would also be in line with our estimated timeframe whereby GenS’s IR in Japan would commence operations by 2020.

Based on its latest conference call, GenS also highlighted that the group is all prepared to invest whenever the opportunity arises. We also believe that the group have been fattening its war chest for such opportunity and raising additional funding for such project should not be an major issue.

Catalysts

• Higher-than-expected visitors’ arrival into Malaysia.
• GenM’s UK development completed earlier-than-expected.
• License to develop full-scale casino granted by New York’s and Florida’s legislators.
• GenS to penetrate into international markets (Japan).

Risks

• Hike in gaming tax.
• Disappointment on the legalization of full-scale gaming casino in both New York and Florida.
• Failure in casino license renewal in Malaysia and Singapore.

Rating

OVERWEIGHT

Positives – (1) Defensive and monopoly industry.

Negatives – (1) Highly regulated industry; and (2) Earnings highly dependable on luck factor.

Valuation

We remain OVERWEIGHT on the sector:

• GenT – We maintain BUY with higher TP of RM11.33 based on SOP valuations.
• GenS – Maintain BUY, with unchanged TP of SGD1.49 based on 9.5x FY14 EV/EBITDA multiple, 20% discount to Macau peers
• GenM – Maintain HOLD with unchanged TP of RM4.25 based on SOP valuations;

Source:Hong Leong Investment Bank Research - 10 Sep 2013