Company Overview Genting Singapore PLC is best known for its flagship project Resorts World Sentosa, a S$6.6 billion integrated resort in Singapore. The Company develops and manages the resort and operates the casinos.
What is the news?
Tamerton Pte Ltd, a wholly owned subsidiary of Genting Singapore, won a hotel site at Jurong Town Hall Road with winning bid of S$238.2 mil. The site has a land area of 0.9 ha and a potential gross floor area of about 19 ha.
How do we view this?
The subsidiary’s bid was excessive relative to other bidders in the same tender as well as against bidders in previous hotel site tenders. GENS must be extremely keen to have the parcel of land. If not, the excessive bid is then a reflection of their unfamiliarity with the business.
Based on our assumptions, we do not expect earnings from the hotel project to be significant. EPS accretive is non-material given the company’s large share base.
Investment Actions?
We maintain our neutral rating with fair valuation of S$1.15, at 11x FY12-13 EV/EBITDA.
Tamerton Pte Ltd was incorporated on 1st Sept 2011 as an investment holding company. It won a contract to build the first hotel in Jurong Lake District.
Jurong Lake District occupies a total area of 360 ha. The hotel will be located close to the Jurong East MRT station, Singapore Science Center, new shopping malls, offices and the upcoming Ng Teng Fong General Hospital.
The hotel will cater to both business and leisure visitors.
The site area is about 0.9 ha with maximum allowable gross floor area of 19 ha. Building height permissible is up to 60 metres above Average Mean Sea Level (AMSL). The lease period is 99 years and Tamerton is given up to 60 months to complete the project. The investment sum of S$238.2 mil works out to be about S$1,167 psf.
According to CBRE, Singapore’s average occupancy rate and average room rate for the first half of 2012 were 88% and S$249 respectively. Taking into account the location of the hotel, we assume occupancy rate to be 80% and ADR at S$250. We note that Capri by Fraser Changi City has room prices ranging from S$195 to S$390 with sizes from 32 sqm to 67 sqm.
Our view.
GENS’ bids were excessive relative to bidders in the same tender and against winning bids for previous tenders. Eg, the most recent bid for a hotel site located at Victoria Street/Jalan Sultan was at S$10,696.19 psm, 17% higher than Tamerton’s bid (table 4).
Yet, given the extremely large share base of 12 billion shares, the earnings from this hotel development is not expected to be significant.
We maintain our neutral rating with fair valuation of S$1.15, at 11x FY12-13 EV/EBITDA.
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