Morgan Stanley has upgraded Genting Singapore to “overweight” from “equal-weight” and raised its price target for the gaming group to $1.30 from $1.25.
It cites an expected move by Japan to legalize casinos in 4Q2014, the likely ground-breaking of Genting Singapore’s Jeju project in South Korea in 1H2015, and the opening of Jurong Hotel in Singapore next year as catalysts for the stock.
The company’s growth profile and ability to generate cash flow also “look better than Macau’s” in the near term, Morgan Stanley analysts Praveen K Choudhary and Xin Jin Ling say in a note.
On Japan, they say a bill to legalize casinos could pass in the upcoming Diet session in 4Q2014, paving the way for gaming groups like Genting Singapore to set up shop in the country.
“Genting Singapore has focused on Osaka, which it believes has a better prospect of having the first casino to open, as Tokyo is focused on preparing for the Olympic Games in 2020.”
Meanwhile, Genting Singapore’s investment in a casino-resort in Jeju is expected to start contributing from 2017, they say.
“Genting Singapore and its partner are targeting a soft opening of the 2,800-room hotel and facilities by 2017. The stated return of 10% would be accretive and more than what the company earns on its cash currently.”
Jeju could cater to a population of 800 million Northeast Chinese within a two-hour flight time, and mainland Chinese do not require a visa to enter Jeju, they note.
The opening of Jurong Hotel next year should drive Genting Singapore’s mass-market volumes and profitability, they add.
Revenue per available room for the group’s existing hotels has risen at a 14% compounded annual growth rate in the last three years, they say.
Shares of Genting Singapore traded at $1.135, up 2.3%, at 3:20 pm Singapore time.
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