Duopolistic market, but subpar returns may drive up competition Market expectations are for a benign competitive market, a duopoly shared with Las Vegas Sands. However, when compared with Macau, Singapore’s gaming pie is much smaller, and we think casino operators may be under pressure to increase returns, especially after significant project capex. Based on our 2011E forecasts, we estimate average project ROIC to be 14%, vs. Macau’s average of 20+% and Venetian Macao’s 15%. Competition could surprise on downside.
Malaysian casino likely to face significant cannibalization risk Genting Malaysia’s casino is likely to face real competition for the first time in Southeast Asia, and our visitor profile analysis suggests that up to 20% of its arrivals could be at stake. We see potential -27% earnings decline in 2010E, after this year’s 10%, 2010E core earnings decline being its worst on record. The market seems to take a more benign view, but we see significant downside risk.
Downgrade Genting Singapore and Genting Malaysia to Sell Conventional wisdom would suggest buying Genting Singapore. However, we think the market is pricing in a very positive outcome for Integrated Resort, hence our downgrade to Sell from Neutral. Our 12-m SOTP-based TP is revised to S$0.65 from S$0.44. For Genting Malaysia, we think the market may be taking an overly optimistic view of its Malaysian casino operations, where we see significant cannibalization risk. Our earnings are significantly below I/B/E/S consensus and, as a result, we downgrade Genting Malaysia to Sell from Neutral with a revised 12-m SOTP-based TP of MYR2.60 from MYR2.80. We maintain our Neutral rating on Genting, but raise our 12-m NAV-based TP to MYR6.60 from MYR4.80. Key upside risks to Genting group: better-than-expected Singapore Integrated Resorts opening, lower-than-expected cannibalization risk at its Malaysian casino. Downside risks for Genting: poor non-gaming earnings.
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