Capacity to double dividends.  Based on our estimates, GENS has the ability to double its dividends to 6 Scts (6.3% yield) from our FY15F DPS estimate of 3 Scts. With the positive market reaction to its first interim dividend of 1.5 Scts, we believe this will incentivise and encourage management to raise its payout ratio and return more cash to shareholders.

Increasing dividend payout does not jeopardise ability to bid for a Japanese casino.  While it is unclear whether the Japanese government will pass legislation to legalise casinos and the exact details of an eventual integrated resort (IR) such as number of tables and non-gaming attractions required are unknown, based on press reports, an IR could cost US$5-10bn. Assuming 50% gearing, GENS' s equity contribution could amount to US$2.5-5.0bn or S$3.55-7.1bn.

Based on our estimates, we believe GENS will be able to accumulate up to S$7.1bn worth of cash in five years' time even after raising its annual dividend to 6 Scts. This is premised on (1) S$900-1,200bn in annual operating cashflows over the next five years, (2) S$200m in annual capex. and (3) recent disposal of 50% interest in the Jeju project for S$588m, as well as (4) redemption of its outstanding perpetual securities, and (5) raising debt at GENS' s holding company level with its net debt/(net debt + equity) still comfortable at 24% or 40% level in five years' time. For more details on our calculation, please see the tables overleaf.

Redemption of outstanding perpetual securities.  GENS has two outstanding perpetual securities worth S$1.8bn and S$500m that it has the option to call/redeem at par on 12 September 2017 and 18 November 2017 respectively. Assuming the perpetual securities are not redeemed, in September 2022, the distribution rate will step up from the current 5.125% to 6.125% (initial distribution rate of 5.125% plus step-up margin of 1%).

While the 1% step-up penalty is low considering the current demands of fixed income investors and GENS is unlikely to be able to issue another perpetual security at such favourable terms, in our view GENS will still likely redeem the perpetual securities as failure to do so will negatively impact its reputation and the future ability for the group and its parent company Genting Berhad to issue other fixed income instruments. In addition, the market is already pricing in GENS calling back its perpetual securities.

Doubling FY18 DPS to 6 Scts.  Given our analysis of GENS' s strong cashflow generation and potential funding needs for a Japanese casino, we forecast GENS to distribute 4.5 Scts in dividends ahead of a 6.0-Sct dividend in FY18. While GENS has the ability to pay a 6.0-Sct dividend in FY17, we expect GENS' s management to be more conservative with its dividend payout to assess the strength of the turnaround of its underlying business.

DPS ahead of EPS sustainable.  While our projected FY17 and FY18 DPS of 4.5 and 6.0 Scts are higher than our estimated FY17 and FY18F EPS of 3.1 and 4.5 Scts respectively, we believe the dividend payout is sustainable. This is because of GENS&rsquo s large retained earnings of S$1.7bn, strong cashflow generation and the ability to distribute dividends as a return of capital as its share capital base stands at S$5.5bn.

Raising TP to S$1.15.  With our base-case scenario of GENS redeeming its perpetual securities, raising its dividend and optimising its capital structure, we raised our DCF-based TP to S$1.15 from S$0.91. Our higher valuation is a result of a lower beta of 1.0x from 1.05x as a consequence of investors rewarding GENS for increasing its dividends. GENS was previously trading a high free cash flow yield but this can now be realised with an increase in dividends. In addition, we also raised GENS&rsquo s target gearing to 30% from 12% currently, as the company optimises its balance sheet. Our TP valuation of S$1.15 implies a EV/EBTIDA multiple of 12.9x, close to GENS' s average forward EV/EBITDA multiple of 13.1x.

Continues to trade at a discount to historical valuation range and Macau peers.  While GENS' s share price has rallied over 25% since its 3Q16 results on the back of its maiden interim dividend and signs of potential turnaround in its underlying business, we believe the rally has further legs to run. This is because GENS still trades at 10.3x FY17F EV/EBITDA, which is below &ndash 1SD of its mean of 10.9x and average EV/EBITDA multiple of 13.1x. In addition, GENS trades at a c.30% discount to its Macau peers on a forward EV/EBITDA basis which is -1SD of its mean EV/EBITDA differential.

With prospects of increased dividends going forward, recovery in earnings and optionality from a potential Japanese casino in the medium term, in our view GENS can rerate closer to its average EV/EBITDA multiple of 13.1x and narrow its discount to its Macau peers.

Reiterate BUY.  With a revised TP of S$1.15, we reiterate our BUY call. We believe the recent share price rally can continue given the double act of higher dividends as well as prospects of an earnings recovery following a two-year downturn.