Highlights

• Gaming bill passed in Japan. It was reported that legalising casinos in Japan has been passed by the Lower House of Parliament on 6 Nov 2016. The bill is now heading to the Upper House and it could be passed before the legislative session ends on 14 Dec 2016. However, it is unlikely that the casino could be ready before the Tokyo 2020 Olympics.

• Too early to speculate. GenS, which is redeploying its resources from Korea, is ready to go into a competitive bidding war in Japan once the framework of legislation is put into place. Despite the encouraging progress, we opine that it is a premature bet on GenS at current juncture given the uncertainty and potential competitors from both local fronts (Universal Entertainment, Sega Sammy) as well as internationally (Sands, MGM, Wynn and Hard Rock).

• Strong rally but... GenS share price has rallied by 31% and hit SG$1.035 intraday yesterday since our upgrade to BUY on 4 Nov 2016. This was on the back of surprise dividend, strong performance in 3 rd quarter and the news on the passing of gaming legislation in Japan on Tuesday.

• …may not sustain as growth is muted. Despite the strong performance, it is estimated that the gaming volume for VIP and mass market in Singapore retracted by c.35% and c.8% yoy, respectively. Strangely, the decline was recorded on the back of rising visitors’ arrival from China, leading us to believe that the growth outlook in Singapore is rather bleak with the continued shrinking of VIP business.

• Exit Korea to pave way for Japan. GenS previously entered into a conditional S&P agreement on 11 Nov 2016 to dispose its 50% interest in the Jeju JV for US$420m (c.S$588m) to refocus on Singapore and possible venture into Japan. No projection has been made from this project previously hence no material impact is expected other than a probable disposal gain of approximately S$81m.

• Expecting final dividend. Following a surprise interim dividend of 1.5 cent in 3Q, we foresee a usual final dividend of 1-1.5 cent to be declared in 4Q given its strong level of cash at S$0.29 net cash per share and the incoming proceeds from exiting Korea.

Risks

• 1) Regulatory risk; 2) Further decline in RWS’ market share to MBS; 3) Weaker-than-expected hold percentage.

Forecasts

• Unchanged

Rating

• HOLD , TP: SG$0.92

• Downgrade to HOLD as we opine the rally is overdone by the excitement of Japan, special dividend and strong results. Though we expect stabilized performance from GenS going forward given its cleaner balance sheet and cost rationalization effect, the strong results may not be sustainable as the overall gaming outlook remains lacklustre while the possible Japan venture is still uncertain.

Valuation

• Target price is raised to S$0.92 from S$0.85 , based on higher EV/EBITDA multiple of 8.5x (from 7.5x), a 20% discount to peers, as we expect stabilized performance and growing interest following the progress in Japan gaming

Source: Hong Leong Investment Bank Research - 9 Dec 2016