Genting SP

Genting SP: the Casino Regulatory Authority (CRA) awarded the first batch of Junket licenses to two Msian operators, for both to operate in GENS’ RWS.
This is the catalyst that the whole Street has been waiting for, in order to raise their market forecasts. Unanimous Street view that near term positive sentiment will drive share price.

KELive notes the following positives:
i) While junket approval was always on the cards, the timing of this announcement came largely as a surprise, with GENS’ share price virtually unchanged over this week. Hence today’s share price reaction could be more intense.
ii) worth noting that GENS’ rival MBS did not receive any junket approvals this time. This should give GENS’ the window of opportunity to take VIP gaming market share.
iii) this paves the way for further junket approvals going forward, which should be incrementally positive for volume growth. The CRA is currently evaluating a few other applications and is in the midst of conducting probity checks for these applications.

The Street is likely to raise their earnings forecasts.
Spore’s annual revenue of the VIP market (no junkets) is ~US$3b; this compares with Macau’s US$24b (90% junket driven).
Morgan Stanley estimates revenue could increase by 7% and EBITDA by 11%, based on the following assumptions, i) VIP tables currently generate US$24,500/day, but rise to Macau avg of US$30,000/day with junkets, ii) 50% of tables assigned to junkets, iii) pay 0.2% extra to junkets.

To temper over optimism, some analysts note the following:
i) out of 14 applicants, 12 were rejected, which shows the CRA’s stringent criteria in granting approvals,
ii) the two Msia licensees are subject to strict rules themselves, eg. license valid for 1 yr, not allowed to target locals,
iii) the extensive financial reporting and credit assessment of foreign VIP rollers by the junkets may mean Chinese VIPs (biggest market) may still prefer Macau.

Goldman says this is a new dawn for Spore Gaming. Keeps at Buy with TP $2.16.
DBSV reiterates Buy with TP $2.05. Says re-rating in store.
UOBK maintains Buy with TP $1.89.
Morgan Stanley keeps at Equal Weight.
Deutsche has a Hold with TP $1.49.
Macquarie keeps at Neutral with TP $1.55.
UBS says stocks may react positively, but potential upside more hype than reality.