Genting SP: Goldman Sachs Upgrade to Buy with $2.22 TP. House believe that recent pullback (-25% YTD vs +40% for Macau) offers a good entry point. The stock now trades at 11.0x/8.8x FY11E/12E EV/EBITDA vs Macau at 12.8x/10.1x. The year 2012 looks promising for the firm, yet calculate the stock is pricing in a 5% yoy decline (vs +17% yoy forecast) in SG Gaming Rev to $7.5bn and correspondingly, declining cash returns.
Add that investors should be less influenced by quarterly swings and more focused on underlying trends:
(1) new VIP Suites/Villas (Dec 11/Feb 12) and additional gaming salons;
(2) improving ops leverage - GENS is fully staffed, thus the cost base is unlikely to grow much as revenues roll in;
(3) strong FCF generation of S$1.3bn/1.5bn in 2011E/12E; GENS is already net cash – potential for dividend surprise;
(4) phased rollout of Junket licenses, not before 1H2012.
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