SINGAPORE (Feb 27): Maybank Kim Eng is upgrading Genting Singapore to “buy” with higher S$1.10 target price, saying higher-than-expected dividends declared has overshadowed the challenging operating environment outlook.

In FY16, Genting Singapore declared a final DPS of 1.5 Singaporean cents. This brings FY16 DPS to 3.0 cents, which is 50% higher than a year ago and outperformed Maybank’s expectations by 1.0 cent or 50%.

“We concede that investors will be more excited over the higher-than-expected dividends,” says analyst Yin Shao Yang in a report last week.

The FY16 DPS implies 127% core dividend payout ratio, which will be a first for a Genting company, according to Yin.

Looking ahead, Genting Singapore expects VIP volumes to be stable and to maintain trade receivables at S$200 million, but concedes that the mass market will be negatively impacted by the weak MYR. However, Genting Singapore is confident of maintaining DPS at 3.0 cents per annum.

Therefore, Maybank is leaving its earnings estimates largely unchanged but lifting its FY17 DPS estimate from 2.5 Singaporean cents to 3.0 cents, and FY18 DPS estimate from 2.7 cents to 3.0 cents.

And although DPS of 3.0 cents per annum imply high DPRs of 80-90% going forward, Genting Singapore is confident it can gear up to bid for a Japanese integrated resort (IR) licence in either Osaka or Yokohama if the Bill is passed in 4Q17.

Genting Singapore expects each IR to cost US$7-US$12 billion (S$9.8-S16.9 billion) of which land will cost US$2-US$3 billion.

But as its balance sheet position is net cash, Genting Singapore believes it has an advantage over its heavily-geared competitors.

Shares of Genting are down 1 Singaporean cent at S$1.00.