Genting Singapore shares took a hit yesterday along with others in the sector due to more gambling crackdowns in China, but optimism continues to build around the company.
The chief cause of the improved sentiment is the enticing prospect that Japan, gambling's next major frontier, will finally allow casinos.
If that happens, and a major step forward was taken by the Japanese Parliament this week, a massive new market could open up for companies like Genting.
A bonanza there could in turn outweigh the potential impact from China's gambling crackdown.
The latest curb came yesterday with reports that Beijing has halved the UnionPay ATM withdrawal limits in Macau to curb gamblers' access to money. That sparked a rout in gambling shares here and in the United States and Australia, with Genting closing down 1.51 per cent at 98 cents. However, Genting is still up 13.3 per cent over the past month, thanks to the promise of Japan.
Japan would make a very attractive expansion destination for Asia-focused operators like Genting, which last month withdrew from its casino project in Jeju, South Korea - a move read by many as shifting the focus to Japan.
"Japan is the last Holy Grail in the casino industry, with a potential market opportunity of up to US$30 billion (S$43 billion). So, a positive news flow on the passage of the Bill would certainly lead to a re-rating for the casino operators," Credit Suisse Asia-Pacific equity investment strategist Suresh Tantia told The Straits Times.
DBS analyst Mervin Song has a 12-month price target of $1.15 for Genting, tipping that net profit will surge 83.1 per cent next year after the estimated 13.4 per cent slide this year. His bullish view was based on more than just the opportunity in Japan, as Genting's performance has shown strong signs of a turnaround.
Net profit grew 187.2 per cent year on year in the third quarter to $106.9 million, due partly to a further reduction in impairment losses, which are usually incurred by uncollectible gambling debts.
"We are expecting a recovery next year because of a decline in bad debts and slight improvement in VIP flow," added Mr Song, referring to the high-roller gamblers that bring in the big money for casinos.
He further expects Genting to potentially double its dividend to six cents in 2018.
IG market strategist Pan Jingyi is also positive on Genting: "Of the consumer discretionary counters on the Straits Times Index, Genting looks to have very good growth prospects. For those interested in its long-term outlook, the recent sell-off may present an entry opportunity."
But Mr Song warned against over- reaction to the Japan storyline, "as it is uncertain what form the projects will take, the number of tables allowed or even whether they will be open to foreign operators".