GGRAsia – Yokohama IR exit bad for Genting, upside at Melco says MS

Yokohama IR exit bad for Genting, upside at Melco says MS

Sep 15, 2021 Newsdesk Japan, Latest News, Singapore, Top of the deck

The decision by Japanese metropolis Yokohama to drop its effort to host a casino complex or “integrated resort” (IR), will be a negative for one of the city’s casino-partner suitors, Genting Singapore Ltd, but will have some upside for another, Melco Resorts and Entertainment Ltd, in terms of its debt profile, says brokerage Morgan Stanley Asia Ltd.

A Friday note from the institution, by analysts Praveen Choudhary and Gareth Leung, estimated the Yokohama project would have “brought” Genting Singapore a “net present value” of SGD0.13 (US$0.10) per share.

Net present value is the “present value of cash flows at the required rate of return of your project compared to your initial investment,” according to a definition in Harvard Business Review.

Morgan Stanley stated that, even though Genting Singapore – operator of the Resorts World Sentosa casino complex in Singapore – is sitting on cash reserves of SGD3 billion, the company was “less likely” to declare a higher dividend, due to other spending commitments.

The casino operator has pledged to the Singapore government to invest SGD4.5 billion on a second phase of Resorts World Sentosa, and had already spent around SGD1 billion on land there, said the Morgan Stanley memo.

Genting Singapore linked with Japan-based entertainment and gaming conglomerate Sega Sammy Holdings Inc, for the Yokohama project, with Japan-based Kajima Corp chosen as the construction partner.

But Morgan Stanley believed Yokohama’s decision “could be positive” in terms of capital expenditure saving for Melco Resorts, which had US$4.8 billion net debt at the end of June.

The newly-elected anti-casino mayor of Yokohama, Takeharu Yamanaka, confirmed on Friday that the Japanese city will “abolish” with effect from October 1, an office specially-assigned to promoting the IR initiative that was supported by his predecessor, Fumiko Hayashi.

On Monday, Lawrence Ho Yau Lung, chairman and chief executive of Melco Resorts, which runs casinos in Macau, one in the Philippines and several in the Republic of Cyprus, said the group remained “committed to exploring opportunities to develop the world’s best integrated resort in Japan”.

Mr Ho confirmed in a press release that Melco Resorts would be closing its Yokohama office, “while maintaining a representative office in Tokyo.”

Tokyo itself has not yet declared whether it will seek to host a casino under Japan’s liberalisation policy. In July municipal elections in Tokyo, anti-IR parties gained some ground.

Under the current policy timetable, April 28, 2022, is the deadline for local authorities to submit their respective casino resort plans to Japan’s national government.

Up to three large-scale casino complexes with associated tourism facilities will be allowed nationally in Japan under the liberalisation plan.