"We think Japan’s IR Basic Policy would be introduced by end-FY19 at earliest," says analyst Cezzane See.
So far, Osaka has called for a request for concept (RFC) in April and Yokohama has issued its request for information (FRI) in 4Q18 and GENS has participated in both.
In a Friday report, See says, “We think any new casino openings could be in FY26 at the earliest. In our base-case scenario for FY26, we estimate urban IRs could yield US$830 million ($1.12 billion) to US$1.0 billion EBITDA, while a regional IR could contribute about US$270 million EBITDA.”
GENS has previously stated it prefers larger IRs, but the analyst reckons a regional IR is likely to be earnings accretive and break even in a shorter period.
Assuming GENS takes a 50% stake, debt financing and 11 times FY26 EV/EBITDA, See estimates urban IRs could add 18-23 cents while regional IRs add 7 cents to GENS’s fair value.
Moreover, the group’s non-gaming segment revenue is expected to rise by about 40% to $1.2 billion in FY26, with 50% more hotel rooms and three new attractions.
Assuming a return of 12%, discounted at 8.8% Weighted Average Cost of Capital (WACC) back to FY20, and valued at 10 times FY26 EV/EBITDA, Resorts World Sentosa 2.0 is estimated to add 5 cents to GENS’s FY20 fair value.
“We think GENS’s average FY19-21 operating cash flow of $1 billion per annum will be sufficient to cover the around $900 million per annum ($4.5 billion for five years) capex for RWS 2.0,” adds See.
Meanwhile, for the equity needs of an Osaka and regional IR, as well as 80% of a Yokohama IR, See expects that the group’s end-1Q19 net cash position of US$2.4 million to meet that.
Currently, the stock is trading below a historical mean of 9 times, making it the least-expensive stock in CIMB-CGS’s regional gaming universe.
As at 4.10pm, shares in GENS are trading at 1.08% lower at 92 cents or 1.4 times FY19 book with a dividend yield of 3.8%.
