Upgrade to Buy: The Numbers Do the Talking - Citi

Surprising market size — Normalizing Resorts World Sentosa’s 2Q10 gaming

revenue and making it comparable to that earned by Marina Bay Sands during the
65 days it operated in 2Q10, we believe RWS had a market share of ~67% vs MBS’
~33%. We anticipate MBS to fight back and RWS to see its market share normalize
to ~60%, which implies that the two casinos could generate total gaming revenue of
US$3.8bn in 2011 (vs. our previous assumption of US$3.1bn).

 Blowout 2Q numbers — GENS reported revenue of S$860.8m and EBITDA of
S$503.5m during 2Q10, beating both our estimates and consensus of ~S$220m by
miles with a very robust 2Q EBITDA margin of 58%. Although management
attributed the strong results to a higher than average hold rate, we believe VIP
rollings and mass market drops also rose materially.

 Strong balance sheet — During 1H10, GENS drew down the remaining S$900m
from its syndicated loan facility to fund its construction of phase two at RWS. We
believe that the operator is now close to peak-CAPEX gearing level. On our
estimates, the operator’s 2010 debt-to-EBITDA multiple is a healthy ~3.5x, and the
ratio is expected to improve going forward, given the solid operating cash flows
generated from the casino. One concern on the B/S though is the rising accounts
receivable balance, which we believe is due to the increase in VIP gaming volume.

 Upgrade to Buy (1M) — We like GENS because, based on the data points available
to date, GENS apparently has the right casino product that appeals to the market
and will continue to dominate the Singapore market in the near term, in our view.
We continue to value the stock on a blend of DCF and SOTP (consistently on
Macau’s sector EV/EBITDA multiple of ~12.5x). Consequently, we raise our TP from
S$0.99 to S$1.55 and upgrade the stock from Sell (3H) to Buy (1M).

 We transfer coverage from Dominic Noel-Johnson to George Choi.