Genting Singapore G E N S S P

G AM I N G , H O T E L S & L E I S U R E | S I N G AP O R E

Maintained
NOMURA SECURITIES MALAYSIA SDN BHD

Wai Kee Choong +60 3 2027 6893 Nishit Jalan (Associate)

waikee.choong@nomura.com REDUCE
Closing price on 17 Aug Price target Upside/downside Difference from consensus FY11F net profit (S$mn) Difference from consensus
Source: Nomura

 Action
Excluding abnormal winnings attributable to the luck factor in 2Q10, GENS’ normalised earnings look set to fall in 3Q10F on lower net wins and bad debts. With the Singapore casino market shaping up to be S$4bn in size, together with better luck, we lift our EBITDA estimates to S$1bn for FY10F and FY11F. Benchmarking against the Macau operators’ average EV/EBITDA of 12x, we now value GENS at S$1.01/share. But with consensus expectations rising following the results, we see significant downside risk to consensus earnings for FY11F. REDUCE reaffirmed.

S$1.52

S$1.01
(from S$0.72)

-33.5% -41.6% 671 -25.5%

 Catalysts
Expectations of the size of the gaming market in Singapore have gone still higher post the 2Q results. A fall in normalised earnings in 3Q10 could trigger a selldown. Anchor themes Unlike Macau, the Singapore government has no plans to make Singapore a gambling hub and expectations of the market size should be kept realistic.

Nomura vs consensus
Consensus seems to have extrapolated the abnormal and highly volatile winnings of 2Q10 into its 2H10F and FY11F earnings estimates.

2Q likely to be peak quarter (II)
 A clearer picture emerging
With the two casino operators having reported 2Q10 earnings, the potential size of the casino market in Singapore is shaping up to be S$4bn. This is 25% higher than our original estimate of S$3.2bn. But consensus expectations have gone to S$6bn, which we believe is not realistic given stringent junket rules. Operators turning cautious on direct VIP funding would also put a curb on the market, we believe.

Key financials & valuations
31 Dec (S$mn)
Revenue Reported net profit Normalised net profit Normalised EPS (S$) Norm. EP S growth (%) Norm. P/E (x) EV/EBITDA (x) Price/book (x) Dividend yield (%) ROE (%) Net debt/equity (% ) Earnings revisions Previous norm. net profit Change from previous (%) Previous norm. EPS (S$)
Source: Company, Nomura estimates

FY09 FY10F FY11F FY12F
491 (278) (168) (0.017) na na na 3.6 0.0 (8.1) 24.5 3,173 205 624 0.051 na 30.3 18.2 3.8 0.0 4.6 16.5 157.4 296.5 0.013 3,363 671 615 0.051 (1.5) 30.7 17.5 3.3 0.0 12.9 3,765 809 765 0.062 22.0 24.7 14.8 3.0 0.0 13.6

8.5 net cas h 271.5 126.4 0.022 381.7 100.5 0.031

 Normalised 3Q earnings to fall
Excluding abnormal and highly volatile wins attributed purely to the luck factor, GENS’ normalised net win per day comes to roughly S$7mn in 2Q10 — likely down 20% since MBS’ opening. Together with a rise in potential bad debts, we expect 3Q10F earnings to fall before stabilising in 4Q10F.

Share price relative to MSCI Singapore
(S$) 1.7 1.5 1.3 1.1 0.9 0.7 O ct09 May10 Feb10 Mar10 J an10 Apr10 J un10 Aug09 Sep09 Nov09 Dec09 Jul10 3m 53.5 57.6 52.3
Pri ce Rel MSCI Singapore

170 150 130 110 90 70

 Margins likely to have peaked
The lopsided market share split (currently 67% for GENS) is likely to attract competition from MBS, and we expect margins to taper off from the exceptional levels of 2Q10. Moreover, we see downside risks in potential bad debt write-offs. GENS chalked up an additional S$221mn in receivables, bringing the total to S$302mn. Assuming a credit period of 120 days and S$1bn revenue would imply S$360mn in receivables. In our FY10-12F estimates, we cut EBITDA by 10% to account for a potential bad debts write off.

Absolute (S$) Absolute (US$) Relative to Index Market cap (US $mn) Estimated free float (% ) 52-week range (S$) 3-mth avg daily turnover (US$mn) Stock borrowability Major shareholders (% ) Genting Bhd
Source: Company, Nomura estimates

1m 27.7 29.6 29.5

6m 49.0 54.4 47.1 13,649 48.2 1.58/0.85 98.6 Hard 51.8

 Price target of S$1.01/share
Using the simple average EV/EBITDA multiple of 12x currently fletched by the Macau operators, we derive a revised price target of S$1.01/share (previous: S$0.72). Given high expectations, we see the stock as highly sensitive to negative earnings surprises.

Any authors named on this report are research analysts unless otherwise indicated. See the important disclosures and analyst certifications on pages 9 to 12.
Nomura 1 18 August 2010

we believe management is likely to take a more conservative approach to VIP business. when MBS was facing teething problems. in our view. 50% GENS. we assume for 3Q10F and 4Q10F a 20% decline from the estimated normalised S$7mn net win per day. we think its share of VIP business should start to taper off from 3Q10F onward. GENS’ normalised net win per day comes to roughly S$7mn. The market share split once MBS’ operations pick up momentum is likely to be more evenly divided in 2011F.Genting Singapore Wai Kee Choong Big picture Clearer picture emerging On 28 July. Genting Singapore’s (GENS) Resorts World at Sentosa (RWS) reported a much stronger net win per day of S$8. we believe. The S$7mn normalised net win per day for GENS is sustainable. the surge in VIP business was led by management’s decision to take on risk by granting credits to players.6mn and a 61% market share for GENS. In 2Q10 alone. Excluding the abnormal and highly volatile wins attributed purely to luck (commonly known as the luck factor). 39% MBS. 50% Source: Company data.2mn on estimated gaming revenue of S$745mn. Given the greater risk involved. 61% GENS. Based on a net win per day of S$5. The effect of MBS’ opening was only felt in May and June. Las Vegas Sands (LVS) reported that its newly opened Marina Bay Sands (MBS) had a net win per day of some S$4mn in its first 65 days of operations. in our view. implying potential revenue of S$364mn for a full quarter. Nomura 2 18 August 2010 . In turn. Nomura research Source: Company data. In our revised assumptions. Nomura research GENS’ remarkable performance in VIP business is unlikely to be repeated. Market share split in 2010F Exhibit 2. receivables rose by about S$221mn to more than S$300mn. boosted partly by the luck factor S$4bn casino market size Exhibit 1. the implied size of the casino gaming market in Singapore is S$4bn. In the first place. 67% market share for GENS in 2Q10. Market share split in 2011F MBS.

in our opinion. 38. Nomura research Note: Based on 2Q revenues. adjusted for luck factor for both MBS and GENS Source: Company data. Breakdown of Singapore gaming market Slots. Market share of GENS and MBS GENS 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% VIP Mass market tables Slots Overall MBS Mass market tables.4% Exhibit 4. Nomura research Over time.Genting Singapore Wai Kee Choong Exhibit 3.9% VIP.7% Note: Based on 2Q revenues. Against this backdrop. the large working capital requirement and greater risk associated with direct VIP funding are likely to curb the growth potential of the business. unless junket operations take off in a big way. 12. Nomura 3 18 August 2010 . 48. Given the estimated market size of S$4bn and high EBITDA margins of around 50%. adjusted for luck factor for both MBS and GENS Source: Company data. we continue to believe that consensus estimates on the size of the market remain unrealistically high. the Singapore government is in no rush to issue any junket licences to the two operators. in our view.

5 SGD mn 6. using a figure of S$5. we assume a 20% decline in net win per day from the estimated normalised S$7mn net win per day recorded in 2Q10.9 1.5 1.Genting Singapore Wai Kee Choong New numbers Earnings revisions To reflect the better-than-expected 2Q10 earnings boosted by a combination of higher net wins.5 895.086mn for FY11F.039 482 157 FY11F 2.173mn in FY10F and a 30% upward revision to S$3.0 7.6 615.058 624 FY11F 3.4 624. In view of the stronger win rates in 1Q10 and 2Q10. better luck factor and margins.6 FY11F 3.363 1.212. Our higher estimates are on the back of a 56% increase in forecast revenue to S$3.058mn for FY10F and S$1. before assuming a tapering off to 75% of Macau’s average in FY11F.173.0 FY11F 3.3 1.363mn in FY11F.093. These are up from S$482mn and S$667mn previously.058. Nomura vs consensus Nomura forecasts (S$mn) Revenues EBITDA Adjusted net profit Source: Nomura research Consensus estimates FY10F 3.0 4.086 615 % change FY10F 56 120 297 FY11F 30 63 126 FY10F 2. we raise our net win per table assumption to levels higher than Macau’s average. We also use the S$5.173 1.539.0 Q1FY10 Q2FY10 Q3FY10F Q4FY10F FY10F FY11F Source: Nomura research Changes in net wins per table assumptions We previously assumed the win per table would come in at about a 50-67% discount to Macau’s averages for VIP and mass market tables.6mn for 3Q10F and 4Q10F.0 * Positive number implies Nomura estimate exceeds consensus Change in net win per day assumptions In our revised assumptions. Exhibit 5. Net win per day 9.0 1. Nomura 4 18 August 2010 .5 3.594 667 272 Exhibit 6.362.085. mainly due to high net wins on slot machines.8 % difference* FY10F 3 (13) 2 FY11F (14) (29) (31) FY10F 3. As for mass market tables.5 610.6mn net win per day assumption for FY11F. we lift our EBITDA estimates to S$1.3 1.915.5 0. Change in forecasts Previous forecast (S$mn) Revenues EBITDA Normalised net profit Source: Nomura research New forecast FY10F 3. we lift our assumption on net wins per day to a level similar to Macau for VIP tables in FY10F. Exhibit 7.

a better luck factor and full three-month operations boosted its VIP business to 60% of overall business. Notwithstanding the large amount of credit granted to the VIP players. bringing the total to S$302mn.08 Luck factor The luck factor.47 3. Based on our assumption of S$1bn in VIP revenues.200 NA NA 250 1.17 2. Luck factor at play Bad debts to take 10% off EBITDA In its 2Q10 earnings. As for RWS. relatively volatile but entirely based on a statistically abnormal win or loss percentage. we believe consensus remains complacent in its bad debt provision assumptions.VIP market (%) .400 22 50 50 22 50 50 34 60 70 34 60 70 3. In our revised earnings forecasts. Changes in key assumptions Previous forecast FY10F Gaming Segment Win per table as % of Macau . recorded a lower-than-expected win percentage of 2. we cut our upwardly revised EBITDA forecasts by 10% to account for potential bad debt writeoffs. GENS chalked up an additional S$221mn in receivables for its Singapore RWS operations.300 100 150 500 1.VIP business (%) .200 75 120 250 1.Mass market (%) Win per slot per day (S$) Number of slot machines EBITDA Margins (%) . In our FY10-12F estimates. we exclude the luck factor and use only the normalised win rate for the remaining two quarters for 2H10F and for FY11-12F. MBS’ VIP business. which could cut EBITDA margins.Mass market (%) . made up a sizable portion of 2Q10 earnings at both MBS and RWS. Nomura 5 18 August 2010 .Genting Singapore Wai Kee Choong Exhibit 8.7% to 3%. assuming a credit period of 120 days would imply S$360mn in receivables and deducting S$100mn would mean 30% as bad debt. which made up 50% of its business in Singapore.Slot Machines (%) Non gaming segment Visitors to Universal Studios (mn) Source: Nomura research New forecast FY10F FY11F FY11F 50 67 250 1.63 3.18% on rolling chip versus an expected win percentage of 2. We see a high risk of defaults.

To be consistent with our regional gaming sector team’s assumptions. we apply a regional sector average EV/EBITDA multiple of 12x for RWS and all other gaming assets. we derived a sum-of-the-parts based price target of S$0.72share. to EV/EBITDA.182) 12.738 132 125 3. GENS’ shares have been running on the back of higher-than-expected wins per day and the luck factor. Using the simple average EV/EBITDA multiple of 12x currently fletched by the Macau operators. Nomura 6 18 August 2010 . we valued GENS using a blended valuation methodology consisting of: 1) value based on EV/EBITDA. an after-tax cost of debt of 1.420 1.01/share.Genting Singapore Wai Kee Choong Valuation Change in valuation methodology and price target Old valuation methodology Previously.  Using 12x FY11F EV/EBITDA. New valuation methodology With greater clarity on the operations of the two casinos. and  Better-than-expected EBITDA margins would pose an upside risk. In valuing RWS using DCF valuation methodology. This is in line with our valuation methodology for the casino operators in Macau.9%. since we have imputed a bad debt provision of up to 10% of EBITDA in our 2H10 and FY11F estimates. Revised SOTP valuation methodology Businesses Sentosa UK business Rank Cash Debt RNAV Enlarged shares RNAV/share (S$) Source: Nomura estimates Methodology EV/EBITDA 12x EV/EBITDA 12x At market price Value (S$mn) 12.552 12. we have a revised price target for GENS of S$1. we discount the RWS casino and theme park operations using a weighted average cost of capital of 5.5%.739 (4.  DCF valuation methodology. On greater clarity on the operations of the two casinos. we change our valuation methodology from a blend of EV/EBITDA and DCF. risk-free rate of 3% and equity risk premium of 6%.6%.01 Risks to our investment thesis Upside risks to our REDUCE rating include:  Higher-than-expected core earnings and a better-than-expected luck factor. By assigning equal weights to the values calculated using the two methodologies. The WACC is derived from a cost of equity of 9. due to a lack of data points on the Singapore casino gaming market. we shift our valuation to EV/EBITDA Exhibit 9. and 2) a DCF-based valuation.

6 13.9 32.6 18.9) (18.4 20.6) (56.3 17.06 0.9 3.1) (0.8 22.8 18.45 - 0.5 21.7 3.7 20.3 52.105 (208) 898 1.173 (2.05 0.2) na na na na 3.3) (68.5 32.Genting Singapore Wai Kee Choong Financial statements Income statement (S$mn) Year-end 31 Dec Revenue Cost of goods sold Gross profit SG&A Employee share expense Operating profit EBITDA Depreciation Amortisation EBIT Net interest expense Associates & JCEs Other income Earnings before tax Income tax Net profit after tax Minority interests Other items Preferred dividends Normalised NPAT Extraordinary items Reported NPAT Dividends Transfer to reserves Valuation and ratio analysis FD normalised P/E (x) FD normalised P/E at price target (x) Reported P/E (x) Dividend yield (%) Price/cashflow (x) Price/book (x) EV/EBITDA (x) EV/EBIT (x) Gross margin (%) EBITDA margin (%) EBIT margin (%) Net margin (%) Effective tax rate (%) Dividend payout (%) Capex to sales (%) Capex to depreciation (x) ROE (%) ROA (pretax %) Growth (%) Revenue EBITDA EBIT Normalised EPS Normalised FDEPS Per share Reported EPS (S$) Norm EPS (S$) Fully diluted norm EPS (S$) Book value per share (S$) DPS (S$) Source: Nomura estimates FY08 644 (594) 49 (55) (6) 36 (42) (6) (64) (1) (71) 24 (47) (0) (47) (77) (125) (125) FY09 491 (433) 57 (149) (91) (53) (38) (91) (56) (9) (156) (12) (168) (168) (109) (278) (278) FY10F 3.4) na na 116.016 1.40 - 0.6 na na 11.9) (19.5 31.1 5.5 18.00) (0.363 (2.4 3.3 15.00) 0.071 (187) 884 1.1) (2.5) (1.51 - Nomura 7 18 August 2010 .8 18.0 21.7 4.6 2.0 14.5 (0.5 na na na na 6.7 (10.0) (328.6 24.02) (0.4 28.5) 11.0 (14.05 0.3 17.016 (73) 943 (178) 765 765 44 809 809 Our revised EBITDA estimates take into account bad debt provisions of 10% of EBITDA na na na 492.6 1.7 16.6 12.7 5.4 531.058 (161) 898 (113) 784 (160) 624 624 (419) 205 205 FY11F 3.086 (201) 884 (122) 762 (147) 615 615 56 671 671 FY12F 3.7 (0.9 27.0) 30.6) (330.239 (224) 1.9 5.01) 0.3 19.6) na na na 546.7) (23.3 6.4 23.03) (0.2 21.43 - 0.7 30.9 14.05 0.068) 1.06 0.292) 1.5) (1.28 - (0.4 13.2 na 7.3 26.0 24.06 0.1 90.6 (4.8 8.07 0.2) (108.05 0.0 2.2 14.6) na na 406.4 29.6 14.8) (246.02 0.3 20.0 32.225 (209) 1.01) (0.4 25.540) 1.5 34.8 33.765 (2.9 19.9 (8.9 12.4 27.6 (1.3 17.

085 28 446 4.9 7.55 (0.538 1.3) 41.739 73 397 46 83 4.1 (224.760 1.939 FY12F 3.058 FY10F 3.424 0 5.719 FY09 2.906 73 375 43 83 4.286 53 4.3 (44.008 66 126 4 63 1.301 923 47 10.2) Nomura 8 18 August 2010 .1 na 24.7 139.738 4.24 7.498 1.239 (46) (128) 1.008 386 FY09 (53) 433 (454) (74) (1.0 99.6) 28.4 2.2 326.068) 599 6 94 (703) (2.5 net cash net cash 49.725 178 (376) 5.407 73 445 52 83 4.682 1.759 97 584 174 855 4.085 28 441 5.281 85 336 1.994) (2.739 470 FY12F 1.458 (417) 1.2 4.Genting Singapore Wai Kee Choong Cashflow (S$mn) Year-end 31 Dec EBITDA Change in working capital Other operating cashflow Cashflow from operations Capital expenditure Free cashflow Reduction in investments Net acquisitions Reduction in other LT assets Addition in other LT liabilities Adjustments Cashflow after investing acts Cash dividends Equity issue Debt issue Convertible debt issue Others Cashflow from financial acts Net cashflow Beginning cash Ending cash Ending net debt Source: Nomura estimates FY08 36 (63) 57 30 (749) (719) 24 (25) (3) (129) (38) (890) 0 278 (62) 216 (674) 1.9) 94.008 2.2 7.134 9.903 0 5.5 0.760 97 594 174 865 3.1) 3.6) 5.481 8 5.723 923 47 10.208 (698) (376) 4.584 28 436 5.058 (233) (97) 729 (924) (195) 5 (5) (195) 517 930 (113) 1.8 5.401 47 9.334 1.419 (98) 3.072) 1.073) (332) 3.76 16.58 14.2 (65.3) 40.011 FY10F 1.9 5.623 923 47 10.05 7.412 0 5.696 2.064 (324) 741 5 (5) 741 (1.69 14.1 93.654 28 431 4.527 10.719 28 235 16 278 1.338 8 5.906 3.058 97 540 174 811 3.336 10.0 10.759 FY11F 3.768 3.407 (198) Balance sheet (S$mn) As at 31 Dec Cash & equivalents Marketable securities Accounts receivable Inventories Other current assets Total current assets LT investments Fixed assets Goodwill Other intangible assets Other LT assets Total assets Short-term debt Accounts payable Other current liabilities Total current liabilities Long-term debt Convertible debt Other LT liabilities Total liabilities Minority interest Preferred stock Common stock Retained earnings Proposed dividends Other equity and reserves Total shareholders' equity Total equity & liabilities Liquidity (x) Current ratio Interest cover Leverage Net debt/EBITDA (x) Net debt/equity (%) Activity (days) Days receivable Days inventory Days payable Cash cycle Source: Nomura estimates FY08 1.0 85.832 1.510 2.906 802 FY11F 1.9 7.725 (493) (376) 4.059 8 5.1 (37.9 (87.5 0.768 1.267 614 1.43 8.923 0 5.739 3.139 2.725 987 (376) 6.000) (73) (1.064 8 4.78 (1.086 (22) (86) 978 (524) 454 5 (5) 454 (499) (122) (621) (167) 3.939 97 587 174 859 4.768 73 127 13 83 3.856 10.981 0 1.760 We see significant downside risk to receivables 4.

A rating of 'Neutral'.nomura. the fair value will equal the analyst's assessment of the current intrinsic fair value of the stock using an appropriate valuation methodology such as discounted cash flow or multiple analysis.nomura. Japan and elsewhere in Asia it is available on NOMURA. *The Nomura Group as defined in the Disclaimer section at the end of this report. Inc. A rating of 'RS-Rating Suspended'.COM. for purposes of mandatory disclosures. Important disclosures may be accessed through the left hand side of the Nomura Disclosure web page http://www. 13% have been assigned a Reduce rating which. Benchmarks are as follows: United States/Europe: Please see valuation methodologies for explanations of relevant benchmarks for stocks (accessible through the left hand side of the Nomura Disclosure web page: http://www. A rating of 'Reduce'. Analysts may also indicate absolute upside to price target defined as (fair value . etc. for purposes of mandatory disclosures.com/research or requested from Nomura Securities International. indicates that the rating and target price have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the company. If you have any difficulties with the website. Distribution of ratings Nomura Global Equity Research has 1842 companies under coverage. In most cases.Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia. please email grpsupport-eu@nomura. Middle East and Africa. is classified as a Hold rating. indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. a portion of which is generated by Investment Banking activities. are classified as a Sell rating. are classified as a Buy rating. STOCKS A rating of 'Buy'. hereby certify (1) that the views expressed in this Research report accurately reflect our personal views about any or all of the subject securities or issuers referred to in this Research report. REUTERS and BLOOMBERG.com/research).52 SGD Previous Ratings Issuer Genting Singapore Previous Rating Date of change Not Rated 28 Jan 2010 Online availability of research and additional conflict-of-interest disclosures Nomura Japanese Equity Research is available electronically for clients in the US on NOMURA.current price)/current price.com for technical assistance.COM. 47% of companies with this rating are investment banking clients of the Nomura Group*. unless otherwise stated in the valuation methodology. For clients in Europe. US and Latin America for ratings published from 27 October 2008 The rating system is a relative system indicating expected performance against a specific benchmark identified for each individual stock. Wai Kee Choong and Nishit Jalan. ISSUER SPECIFIC REGULATORY DISCLOSURES Issuer Ticker Price (as at last close) Closing Price Date Rating 17 Aug 2010 Reduce Disclosures Genting Singapore GENS SP 1. BLOOMBERG and THOMSON ONE ANALYTICS. 36% have been assigned a Neutral rating which. Nomura 9 18 August 2010 . Inc. 3% of companies with this rating are investment banking clients of the Nomura Group*. 37% of companies with this rating are investment banking clients of the Nomura Group*. As at 30 June 2010. Any Authors named on this report are Research Analysts unless otherwise indicated ANALYST CERTIFICATIONS We. indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. subject to limited management discretion. for purposes of mandatory disclosures.. Explanation of Nomura's equity research rating system in Europe. is or will be directly or indirectly related to the specific recommendations or views expressed in this Research report and (3) no part of our compensation is tied to any specific investment banking transactions performed by Nomura Securities International. (2) no part of our compensation was. 50% have been assigned a Buy rating which.Genting Singapore Wai Kee Choong Other Team Members: Nishit Jalan (Associate) — All enquiries arising from this note should be directed to Wai Kee Choong. Nomura International plc or any other Nomura Group company.. on 1-877865-5752. REUTERS. The analysts responsible for preparing this report have received compensation based upon various factors including the firm's total revenues.

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