Friday, March 23, 2012

Genting Berhad: Junket Programmes In RWS

23 March 2012
Price Target: RM11.50
Share Price: RM10.76


News
# According to Business Times Singapore, Casino Regulatory Authority (CRA) has awarded junket licenses to two Malaysians operators (Huang Yu Kiung and Low Chong Aun) to allow casino operators to extend their international reach. This is given after a series of stringent checks on their background and financial positions.

# CRA said that the regime to regulate the junket operators has “been enhanced to ensure its gaming environment continues to be tightly regulated and free from criminal influence”.

# Apart from these two operators, the CRA is still evaluating other applications and is in the midst of conducting probity checks. It has rejected twelve applications so far.

Comments
# This newsflow is positive to GenT indirectly as Genting Singapore (GenS) now has the right to carry out junket programmes in RWS. These licenses are valid for a year.

# With this official permits, these two Malaysian operators will now be allowed to bring in high rollers to the casinos in RWS for a commission. However, they are only allowed to bring in foreigners and not allowed to target the local community.

# We expect GenS to be able to experience better earnings growth going forward with the help of the recently-approved junket licenses as it will bring in more customers into the casino, especially from the VIP segment.

# As for RWS’s competitor, Marina Bay Sands (MBS), it still does not have access to licensed junkets. Hence, we are positive that RWS will be able to overtake MBS in its market share once the junket programme is implemented.

Risks
1) Regulatory risk;
2) Weaker hold percentage;
3) Pandemic breakouts;
4) Appreciation of RM;
5) Higher-than-expected cannibalisation from Marina Bay Sands (MBS) and Macau casinos; 6) RWS’s junket license not renewed after a year.

Forecasts
Forecasts remained unchanged.

Rating - BUY, Target Price: RM11.50
Positives
(1) Defensive stock; and
(2) New sources of earnings from international markets to drive earnings growth.

Negatives
(1) Highly regulated industry; and
(2) Leisure and hospitality’s earnings highly dependable on luck factor and hold percentage.

Valuation
Target price remain unchanged at RM11.50 based on SOP valuation. Maintain BUY.



Source: HLIB Research

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