The upper house of Japan's parliament has passed the Integrated Resorts (IR) Implementation Bill on 20 Jul, legalizing casino gambling in Japan and paving way for the construction of 3 IR facilities. The passing of IR Implementation Bill yields no surprise. While the interest in GenS may gain traction following the positive development in Japan, it is understood that the invitation for bidding will only commence next year and license to be awarded in 2019/2020. Forecast remains unchanged and maintain BUY with unchanged TP of SGD1.42 (based on unchanged EV/EBITDA multiple of 11x).

NEWSBREAK

The upper house of Japan's parliament has passed the Integrated Resorts (IR) Implementation Bill on 20 Jul 2018, legalizing casino gambling in Japan and paving the way to allow construction of three IR facilities in three different locations.

HLIB’s VIEW

Within expectations. The passing of IR Implementation Bill by the upper house yields no surprise to us. Recall that the bill (second of two pieces of legislation) was passed by the lower house back in Jun 19 and the first piece of legislation in IR Enabling Bill was passed back in 2016. With Prime Minister Shinzo Abe's pro-casino policy to boost tourism activity and given the majority Liberal Democratic Party is enjoying in the parliament, passing the bill was hardly in doubt.

Key details of the bill. While the exact location has yet to be determined, Nagasaki, Osaka and Wakayama are among the cities expressed interest in hosting a casino. The flooring space of the casino can be no more than 3% of the IR's total area and a 30% gaming tax on casino gross gaming revenue (GGR) will be imposed. There is an entry levy of JPY6,000 (US$53) for Japanese citizens with the restriction of not more than three times per week and 10 times per month.

What is next? Both national and local government basic policy on IR, such as Basic Bill on Gambling Addiction Counter measures will have to be enacted before going into proposal and bidding stage. Making no secret of its intention to venture into Japan, GenS may gain traction following this positive development. However, it is understood that the invitation for bidding will only commence earliest by next year and license to be awarded in 2019/2020. The first IR is then expected to be ready only in 2024/2025.

Forecast. Unchanged.

Maintain BUY on GenS with unchanged TP of SGD1.42 based on unchanged EV/EBITDA multiple of 11x (aligned with peers’ average multiple). We believe the improving operating environment and cost structure will continue to benefit GenS along with the growing optimism in the regional gaming outlook. Besides, possible venture in Japan is another huge upswing factor in the near term.

Source: Hong Leong Investment Bank Research - 23 Jul 2018