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But hard to get excited about a flat 2012.

OUTLOOK


As management said on their last conference call, don’t expect much from 2012.  We get that their focus will be on long term prospects for the Company and opening up the rest of their Resorts World development.  However, we don’t see why those goals are mutually exclusive.  Market growth will be an issue in 2012.  Even though this message isn’t exactly new, the Street is still modeling 8% EBITDA growth for 2012 while we are estimating a decline of 4% with RWS EBITDA of just over $1.6BN. 

While we are concerned about the near term, the longer term story for Genting Singapore is brighter.  Namely, the company will likely be announcing a significant project in the second half of 2012.  They are no longer geographically restricted in their investment universe since their sister company has used its dry powder towards Genting Resorts NY and a potential large development in Miami.  Genting stated that the equity investment size would be between S$500-750MM (total ballpark project size of~S$2BN). 

Genting Singapore would likely not develop in the Philippines since there is a Resorts World property already there.  We believe that Japan is too far away from approval to announce a capital raise.  Therefore, our best guess is that the new project will be in Vietnam.  During the ASEAN conference in September 2011, Vietnam was listed as one of two future opportunities for new development.  If Genting can generate similar returns to the 28% ROI generated on RWS in its first full year of operations with an incomplete property, we believe that a new announcement should serve as a positive catalyst for the stock.

Meanwhile, the longer term outlook for RWS is quite positive.  We believe that the Marine Life Park & Aquarium should contribute close to S$300MM of revenues and over S$85MM of EBITDA to RWS by 2014.  While harder to estimate, the contribution from an additional 175 VIP rooms at Equarius and 22 villas should also help drive VIP growth given the lodging capacity constraints at the property and market.  The likelihood of junket approval, even if more tame than the Macau breed, should also help VIP growth in the future.  For all of these reasons, we believe that EBITDA of S$1.8BN could be a surmountable hurdle in 2013.

 

Q4 FOLLOW UP

Based on our conversation with Genting management we have made the following modifications to our observations of 4Q11 from what we wrote on 2/27/2012 in “GENTING BLOWS IT.”

We estimate that gross gaming revenue (“GGR”) was S$903MM

  • VIP gross revenue of S$467MM and net VIP revenue of S$286MM
    • Rebate rate of 1.33%
  • Slot and mass table revenue down 5% QoQ, with slot up QoQ and up on a win per unit basis and mass table down
    • Gross mass table revenue of S$275MM
    • We estimate gaming points were S$50MM or 3.9% of our estimated drop
    • Estimated drop of S$1,375MM and win of 21.7%
  • S$162MM of revenue from gaming machines (slots & EGTs)
    • Estimated handle of S$3.38BN
  • S$258MM of rebates, GST & gaming points
  • Gaming taxes: S$84MM
  • Estimated fixed expenses: S$186MM

2012 ASSUMPTIONS


Based on last quarter’s results and the benefit from high hold in 2011, we have a hard time seeing how the company will manage to grow EBITDA in 2012.  In 2011, RWS VIP held at 3.34%, which we estimate boosted net revenues by $200MM and EBITDA by $190MM, assuming that normal hold is 3%.  Hold at RWS since opening has been 3.19%.

  • S$2,561 of net gaming revenue
    • Net VIP revenue of S$974MM
      • RC volume of S$62.4BN and hold of 3%
        • We’re modeling declines in 1H12 followed by 10% growth in 2H12
      • Rebate of 1.3%
      • Our numbers don’t assume any benefit from junkets getting approved even though Genting is optimistic that junkets will be approved in the near future.  Our understanding is that prior to the junkets getting approved, there needs to be an amendment made to the Casino Control Act which will define under what conditions junkets can grant credit to patrons.  The CRA needs to draft this amendment and then it would have to be approved by Parliament.  Therefore, If and when the amendment to the Casino Control Act goes to the Parliament floor, we will know that junket approval is right around the corner.
    • Gross Mass table revenue of S$1.2BN and S$986MM net of gaming points
      • Drop of S$5.55BN and 21.5% hold
      • We’re modeling low-single digit declines in 1H12 and high single digit increases in 2H12. We believe that mass market is largely mature in Singapore and that RWS is being negatively impacted by the MRT stop which just opened by MBS
      • Gaming points equal to 3.75% of drop
    • S$581MM of slot win
  • Non-gaming revenue of S$676MM
    • S$164MM of room revenue
      • 1525 rooms, 90% occupancy and S$298 ADR
    • S$92MM of F&B and other revenue
    • USS revenue of S$365MM
      • 4.2MM visitors at an average daily spend of S$87
    • Minimal Marine life Park & Aquarium contribution of S$56MM
      • Assume a mid-3rd quarter opening
      • 1.1MM visitors ramping to 4MM in 2013
      • Average daily spend per visitor of S$52
      • 2013 margins expanding to 25-30%
  • Marine Life Park & Aquarium assumptions:
    • As a point of reference, the only other Marine Park / Aquarium of comparable scale in Asia is Ocean Park Hong Kong, whose attractions include a marine mammal park, oceanarium, animal theme park and amusement park.
    • In 2007/2008 the park received 5.0MM visitors, more than the 4.5MM visitors to HK Disneyland. 
      • RWS USS had 3.4MM visitors in 2011, however, not all of the rides were fully open until the end of the year.  We estimate that visitation in 2012 should hit 4.4MM. 
    • The cost of admission to Ocean Park HK is HK$280 (S$46) for adults and half that amount for children between the age of 3-11 which compares to a HK$399 (S$66) for adults and HK$285 for children (3-11). 
      • USS Sentosa is priced at a S$2 premium (roughly in-line) with HK Disney.