Genting Bhd
(March 23, RM11)
Maintain buy at a target price of RM11.50: According to Singapore Business Times, the Casino Regulatory Authority (CRA) has awarded junket licences to two Malaysian operators — Huang Yu Kiung and Low Chong Aun — to allow casino operators to extend their international reach. This follows stringent checks on their backgrounds and financial positions. CRA said the regime to regulate junket operators has “been enhanced to ensure its gaming environment continues to be tightly regulated and free from criminal influence”.

Apart from these two operators, the CRA is still evaluating other applications and is in the process of conducting probity checks. It has rejected 12 applications so far.

This news flow is positive to Genting indirectly as Genting Singapore now has the right to carry out junket programmes at Resorts World Sentosa (RWS). These licences are valid for a year. With these official permits, the Malaysian operators will now be allowed to bring high rollers to the casinos in RWS for a commission. However, they are only allowed to bring in foreigners and are not allowed to target the local community.

We expect Genting Singapore to experience better earnings growth going forward with the help of the recently approved junket licences as it will bring in more customers into the casino, especially from the VIP segment. Competitor Marina Bay Sands (MBS) still does not have access to licensed junkets. Hence, we are positive that RWS will be able to overtake MBS in terms of market share once the junket programme is implemented.

The risks to Genting’s performance include regulatory risk, pandemic outbreaks and a stronger ringgit. We also take note of higher-than-expected cannibalisation from the MBS and Macau casinos, besides the possibility of RWS’ junket licence not being renewed after a year. — HLIB Research, March 23

This article appeared in The Edge Financial Daily, March 26, 2012.