Genting - Best proxy to Singapore’s flourishing tourism industry

We are optimistic that Singapore's first IR start strong in less than six months. In our opinion, Genting Singapore offers exposure to Singapore's flourishing tourism sector and seems well placed to tap the underserved Southeast Asian gaming market. Already the most liquid Asian gaming stock, current premium valuation is sustainable near term given its unique offering, pre-opening premium and stable regulatory regime. Initiate with Buy, S$1.26 target price.

Genting Singapore’s Resorts World Sentosa (RWS) is on track for a soft opening by January 2010. We believe RWS is positioned to capture a 40-50% share of the US$3.0bn casino market, making Singapore’s market one-fifth the size of Macau’s and two times larger than Malaysia’s. Singapore’s excellent air connectivity and attractive gaming tax rate should appeal to VIP high rollers. Domestic population also has a high propensity to gamble, spending an estimated S$9.5bn/year. This should be further complemented by its growing tourist arrivals.

The opening of the two IRs in 2010 should further cement Singapore’s aspiration to become the premier tourist destination in Asia. We expect RWS, home to the first Universal Studios theme park in Southeast Asia, to welcome 11m visitors in 2010 and generate S$0.76bn and S$1.1bn of EBITDA in FY10-11E. Deutsche Bank’s EBITDA estimates are 21% and 50% above the street.

Our target price of S$1.26 values RWS at 14x 2012E time-weighted EV/EBITDA (see pp. 3, 6-7). We do not believe this is excessive considering the pre-opening premium of the Macau plays, tourism scarcity value in Singapore, stable regulatory regime/contained competition and its own historical 2010 EV/EBITDA band of 10- 20x. Key risks are opening delay of RWS; another downturn in the regional economy; intensifying regional competition; and stringent junket licensing process.

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