On Tuesday, Genting Overseas Holdings (GOHL), which owns 53% of GENS, announced it will tap its existing US$1 billion bond for more capital to fund capex at GENT's Resort World Las Vegas.
“GENS’ dividend payout not only has to stream to GENT for its cash flow needs, but also sustain GOHL’s interest reserve requirement (as stipulated by the bond terms),” says Deutsche Bank analyst Jeffrey Ng in a report on Tuesday.
Ng notes that unlike its sister company Genting Malaysia, GENS does not pay GENT any management fees on its gross gaming revenue.
“As such, the only meaningful repatriation of money can be via the dividend,” he adds. “This also explains why GENS declared a 2Q17 DPS of 1.5 cents to be paid out in 48 days (instead of the norm of 90 days).”
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Assuming that GOHL upsizes the bond by US$500 million and that GENT will keep all GENS’ dividends in the GOHL reserve account for the foreseeable future, Ng says an annual DPS of 3 cents is sufficient to meet the bond’s requirement of maintaining an interest reserve account equal to one coupon payment.
“In FY17E, GENS can afford to repatriate up to US$115 million and still meet the bond’s requirement,” he says.
Deutsche Bank has a “hold” rating on Genting Singapore at a target price of $1.20.
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Ng says this is based on an expected FY17 EV/EBITDA of 12 times, which is 12% below the industry mean and 20% below Macau’s.
“In our view, unexciting growth prospects relative to peers justify the discount,” Ng says.
As at 3.16pm, shares in Genting Singapore are trading 2 cents lower at $1.19 or 25 times FY17 earnings with dividend yield of 2.5%.
