Genting SP

Genting SP: Merrill Lynch upgrades to Buy from Neutral with $1.81 TP. House believe earnings have hit trough and could surprise in the next few quarters. Meanwhile, the stock has declined 15% in the past 2-3 mths and is now trading close to trough levels relative to Macau peers. Houses sees 3 reasons to buy it: 1) VIP – sustained credit appetite + receivables in check/ Management reaffirmed its appetite for credit extension, and house believe will continue to be a key driver of the 15% VIP roll growth that we are penciling in. Importantly, the recently released 2012 annual report reveals that the aging of their receivables has been in check, thus reaffirming the credit risk profile of the group. 2) Mass – hold rate could surprise as operations fine-tuned. The group has hired a team of experienced casino executives to revamp its mass market operation. Initial results are promising as the mass market hold reached a record level of 24% in 4Q12. Think there is still scope for upside. Meanwhile, the group will intensify its marketing efforts outside ASEAN once all the attractions in MLP are in operation, and this will be further supported by the opening of the new Jurong hotel in 2015 that will add 30% to room inventory. 3) Inorganic overseas expansion optionality - Meanwhile, investors are also getting the optionality of overseas expansion growth. With $4.5bn cash in its balance sheet, the co is well placed to bid for assets to grow further. Korea and Japan remain the core focus market. The group’s historical internal IRR for investments have ranged between 12-15%.