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Momentum Pushes Genting Singapore Higher, But Investors Should Stays Cautious Over Its Valuation
Corporate Digest | 08 October 2010
Related stocks:
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By: Xavier Lim
Articles (51) Profile

Genting Singapore PLC’s (GS) share price fell 3% on 28 Sep-10 after its President and CEO Tan Hee Teck sold some 900,000 of his Employee Share Option Scheme shares in the open market at $2.05 apiece. Based on 30 Sep-10 closing price of $1.86, GS’ share price has fallen by around 15% since it peaked at $2.18 on 20 Sep-10.

Nevertheless, GS’ share price was able to recoup some of its losses after shooting up as much as 7.5% on the first day of October due to traders buying back the shares to cover their “short” positions as well as a raise on its target price by OCBC Investment Research (OIR).

According to OIR’s report, GS is likely to enjoy a pretty upbeat performance in 3Q10, buoyed by the encouraging tourist arrival numbers. Aided by the Formula 1 SingTel Night Race, OIR believes that overseas visitor numbers in Sep-10 should set another record for 2010 and opines that the rich and famous from around the globe would probably spend some time at the two integrated resorts. OIR pointed out that junkets could enter the scene in early 2011, which is likely to boost gaming revenue for GS in the coming years. OIR has raised GS’ target price to $2.38.

Expectations Must Be Realistic
Is the recent selldown an opportunity for investors to accumulate? Is the market underestimating the potential of Resorts World at Sentosa (RWS) to generate higher revenue in the future? These are things that this writer would not speculate on.

Anyway, investors should take into consideration that no doubt GS has returned to profit in 1H10 due to a significant jump in its revenue, its current share price may have factored in overly optimistic growth assumptions. Moreover, our government has no intentions to make Singapore a gambling hub, and the recent intervention in gaming business by the Casino Regulatory Authority to stop free shuttle bus services raises the level of political risk in the market. Macquarie Research said in its report that RWS’ performance has been a tad lower since the opening of Marina Bay Sands. It has also warned that RWS patronage may be affected when Galaxy Entertainment opens its integrated resort in Macau in 1Q11.

Recently, someone told me that if you bought 1 lot of Genting Berhad (GB) in 1971, you will be a millionaire now, and he believes that GS will be another legend like GB. Well, probably he has forgotten that besides owning a 51.7%-stake in GS, GB also owns a 49.3%-stake in Genting Malaysia and a 54.6%-stake in Genting Plantations. Moreover, GB is the only licence casino operator in Malaysia so far, which technically grants them a monopoly status.

What interests me is that GS has a market capitalization of $25.31 billion, while GB has a market capitalization of only $16.02 billion as at 05 Oct-10. This means that the cost of buying GB is lesser than the cost of buying GS!

Adjust Your Portfolio And Be Sensible
According to the Singapore Tourism Board, a new record of 1.1 million visitors was set in July and there was an 18% increase to nearly 1 million visitors year-on-year in August. With rising tourist arrivals into Singapore, transportation, retail property, hospitality, and the gaming sectors will benefit. As what this writer has mentioned in Issue 392, investors may want to reorganise their portfolio by trimming riskier stocks (in my view, GS is currently overvalued) and finding shelter in stable companies that offer reasonable dividend yield, for example SMRT, CapitaMall Trust and Pan Pacific Hotels Group.

Technically Speaking
The technical picture as shown in the chart suggests that GS is likely to rebound back to its bullish trend again as it stayed above its 25-day moving average of around $1.90. This is supported by the forming of a white ‘marubozu’ candlestick followed by another 2 bullish candlesticks. In addition, GS is still within the uptrend channel. GS looks likely to break its immediate resistance. However, the RSI indicator is hovering around the 50 mark, providing sign of no trend. This means that traders need to be extra careful and constantly look for any reversal signal that will change the trend. Immediate resistance lies at around $2.16, its highest closing price attained. Immediate support will be at $1.86.

View Full-sized Image
1-year daily chart for Genting Singapore PLC
1-year daily chart for Genting Singapore PLC

Armed with an arsenal of investment knowledge, Xavier is the Senior Research Editor at Shares Investment.

Please click here for more information about this author.

Genting Singapore  0.890 +0.005 +0.56%   
Business: Develops, operates & mkts casinos & IRs globally, including Australia, M'sia, Philippines & UK. [FY18 Turnover] Gaming (66.1%), non-gaming (33.8%), others & invs (0.1%).

Insight: May-19, 1Q19, despite Co's non-gaming business reg... Read More


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