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AMRESEARCH has initiated coverage on Genting Singapore PLC (GentingSingapore) with a buy call and fair value of S$0.90 (RM2.17) per share, based on discounted free cash flows of its British and Singapore casino operations.

Concurrently, it upgraded Genting Bhd to a buy from hold with a higher fair value of RM6.35 per share, arrived at after applying a 15% holding company discount to its revised net asset value (RNAV) of RM7.46 per share.

“We believe the opening of Resorts World at Sentosa would provide a kicker to Genting Bhd earnings. At the same time, Genting Bhd is riding on a recovery in CPO (crude palm oil) prices and reflating oil and gas assets,” the research house said in a report last Friday.

AmResearch said GentingSingapore was a long-term story and expected it to be profitable only from FY11 onwards versus consensus’s expectations of FY10.

In spite of its conservative view, it recommended a buy on GentingSingapore due to Resorts World at Sentosa’s long-term profitability and recovery in the British gaming sector.

Its previous hold call on Genting Bhd was premised on higher-than-expected costs for its Resorts World at Sentosa integrated resort-cum-casino (IR) project and bleak outlook for its casino operations in Britain. AmResearch said it was now more positive on GentingSingapore’s prospects.

AmResearch said GentingSingapore’s contribution to Genting Bhd’s FY09 Ebit (earnings before interest and tax) was estimated at negative RM517 million, largely due to pre-operating expenses for Resorts World Singapore and expected to turn positive at RM430 million in FY10, rising to RM1.06 billion in FY11.

It said Genting Bhd’s FY09 core net profit was projected to decline 47% to RM978 million due to GentingSingapore’s operating loss, but should recover by 37% to RM1.2 billion in FY10.

In FY11, when GentingSingapore was projected to swing into net profit, AmResearch forecast Resorts World Bhd’s contribution to Genting Bhd’s Ebit at 48%, down 28 percentage points from 76% in FY08. Genting-Singapore is estimated to account for 29% of Genting Bhd’s FY11 Ebit.

It said Resorts World at Sentosa was scheduled to open in phases, beginning in 1Q2010 and was on track to receive its casino licence in the second half of this year.

“In line with management guidance, we have forecast Resorts World at Sentosa to be Ebitda-positive in its first year of operations. For GentingSingapore as a whole, implied margin is estimated to be 14% in FY10, translating into an Ebitda of S$588 million(RM1.4 billion),” AmResearch said.

It said GentingSingapore’s Ebitda margin should rise to 18% in FY11 and 20% in FY12, adding that Ebitda margin of Resorts World Bhd (RWB) in Malaysia was higher, ranging from 38% to 40% annually for past three years.

AmResearch expected Genting-Singapore’s capex to peak at S$2 bilion in FY09, falling to S$1 billion in FY10, about almost one-third of total asset value.

Balance sheet-wise, AmResearch forecast GentingSingapore’s net gearing peaking at 97% in FY09 before declining to 95% in FY10 and 69% in FY11. “We reckon GentingSingapore should be able to fully repay its S$4.2 billion loan facilities by FY15. We think GentingSingapore should be able to pay dividends in FY12 when free cash flows improve to S$0.16 per share from S$0.07 per share in FY11.”


This article appeared in The Edge Financial Daily, May 11, 2009.

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