Casino Regulatory Authority has approved junket licenses

S$2.02 fair value


Genting Singapore: Positive boost from IMA licenses
● New revenue source
● More junkets possible
● Boost likely in FY13

Two IMA licenses issued
The Casino Regulatory Authority (CRA) has approved junket licenses for two operators to work with Resorts World Sentosa (RWS). The CRA has rejected 12 other applications. The one-year licenses were issued to two Malaysian IMAs (international market agents) – Huang Yu Kiung and Low Chong Aun; and they can only bring in international high rollers. Meanwhile, the licenses can be revoked if the two fail to remain suitable. CRA also has the power to suspend the IMA license at any time.

Big hurdle cleared

While the CRA has only issued two licenses, we note that the move should lay rest to earlier concerns that the regulator is not keen to have junket operators in the Singapore gaming market. Indeed, Business Times reported that the CRA is currently evaluating other applications and conducting the necessary probity checks. We also understand that Marina Bays Sands (MBS) has not endorsed any junket license applications, suggesting that if the other junket operators are approved, GS could continue to maintain a significant lead-time over its rival.

Positive for GS
We believe that the move is generally positive for Genting Singapore (GS), as it will bring a new source of high net-worth players into its casino here. Secondly, the move should also lead to an improvement in GS’ credit risk as the two IMAs can also extend credit to their own high rollers. On the flipside, ongoing amendments to the Casino Control Act could mean more extensive financial reporting and credit assessments by IMAs and the new rules would mean RWS would need to exercise greater diligence over the IMAs.

Maintain BUY with S$2.02 fair value.
However, we believe it is still early days to revise our numbers as it may still need a while to get the junket operations running at full steam. Hence we maintain our BUY rating and S$2.02 fair value.

Target price: S$2.10



Some good news for a change. Two junket licences have been awarded for operation at the Resorts World Sentosa (RWS) only. Our rudimentary calculations indicate that they may bolster Genting Singapore’s (GENS) earnings by 18-26%. We leave our earnings estimates unchanged for now but the licences are definitely a positive development. Maintain Buy and DCF-based target price of $2.10.

Two “junkets” approved. Last Thursday night, the Casino Regulatory Authority awarded two International Market Agents (IMAs) licences, a euphemism for junket licences. They are Huang Yu Kiung and Low Chong Aun, sponsored and authorised to operate at RWS only. The licences will be valid for one year and the IMAs can operate immediately. They are not allowed to target Singaporeans.

Scenario analysis (1): +26% to earnings? Our rudimentary calculations reveal encouraging results. The Macau junket VIP GGR is worth US$21-22b p.a.. Assuming very conservatively that RWS captures just 5% of this market, some US$1b or S$1.3b will accrue to it. Assuming 24% EBITDA margin on gross revenue, the two new IMAs will add S$310m to GENS’ EBITDA or S$260m to net profit.

Scenario analysis (2): +18% to earnings? We understand that there are more than 190 licensed junkets in Macau of which the top 40 account for some 80% of VIP GGR. Assuming 60 are active junkets, another rudimentary calculation reveals that each junket controls US$350m of VIP GGR. With two IMAs at RWS, RWS stands to capture US$700m or S$900m. Assuming 24% EBITDA margin again, the two new IMAs will add S$220m to GENS’ EBITDA or S$180m to net profit.

Maintain Buy and DCF-based TP of $2.10. We leave our earnings forecasts unchanged for now as it is difficult to quantify the IMAs’ exact impact. Under our scenario 1 analysis (+26% to earnings), our 2012 net profit forecast will surge to $1.3b and DCF-based TP to $2.62. Other re-rating catalysts will be the establishment of Singapore as a renminbi trading hub, thereby facilitating junket operations, and GENS obtaining a Japanese casino licence.

What the new IMAs mean
At least one IMA has links to Macau. Mr Huang is the proprietor of Huang’s Junket Promoter Ltd., a licenced junket in Macau. Therefore, we expect some Macau VIP GGR to migrate to RWS through him. We also expect RWS to pay commission rates of 1.5% of VIP volume higher than its average direct VIP rebate rate of 1.2-1.3%. That said, this will be compensated by the IMAs assuming the credit risk.

This is a game changer. Marina Bay Sands (MBS) has yet to sponsor an IMA for licencing, which means RWS has a head start. GENS management said that it is sponsoring 31 IMA licence applications. There is yet another 17 to be approved. With the award of the licences, the IMAs and RWS must strictly keep and disclose records of junkets and VIPs, which must include (1) name, (2) date of birth, (3) nationality, (4) address, (5) number of identification documents, (6) date and time of arrival at casino, and (7) amount and type of commission, rebate or complimentary received.