Given the fervour over Genting Singapore (GENS), we worked out a scenario analysis which pegs GENS’ target price to a wide theoretical range. Nevertheless, we caution that GENS still faces pragmatic challenges pertaining to the high roller market. GENS’ share price has surged more than 25%. Since we initiated coverage on the stock a few weeks ago, GENS’ share price has surged well above our S$0.93 (ex-rights) target price, to now value the company at S$11b. As Resorts World Sentosa (RWS) does not as yet have a proven track record, we ran a sensitivity analysis of GENS’ share price to different scenarios of daily win per table for the VIP and grind markets, and visitor arrivals at RWS.

A wide “fair value” range explored at this conceptual stage. For purely illustrative purposes, a theoretical scenario analysis shows that GENS’ target price could rise to as high as S$2.39/share (ex-rights), implying 2011 EV/EBITDA of 13.8x (refer to our sensitivity table overleaf). Expectations for this “blue sky” scenario are exceptionally demanding, and include an early (end-09) opening date, strong VIP of S$1.9b – which would mean capturing a 13% market share of Asia’s VIP gaming market, and attaining grind revenues of S$2.3b, or 37.5% of Singapore’s gaming market. In addition, RWS would need to operate 800 gaming tables and generate a daily win per table of S$26,000 and S$10,500 for the VIP and grind markets respectively. In comparison, Macau has an estimated daily win per table of S$29,360 (VIP) and S$8,470 (grind).

Maintain HOLD with ex-rights target price at S$0.93/share, or a 2011F EV/ EBITDA of 12.8x. In the short term (after the rights issue announcement), we foresee share price weakness for both GENS and Genting Bhd (GENT). (GENT’s share price has fallen 5-6% in the last two days). However, the downside should be limited by the excitement over Wynn’s and Las Vegas Sands' (LVS) planned listing of their Macau casinos, as well as by the potential early opening of RWS. While valuations could remain stretched for a while, we provide a sensitivity analysis of the target price to various earnings scenarios.