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Genting Outlook Boosts Bets Against the House: Southeast Asia
Corporate Digest | 27 November 2014
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Nov. 27 (Bloomberg) — Analysts are the least optimistic about Genting Singapore Plc in a year as slumping casino revenue from high-rollers curbs earnings prospects for the second-worst performing stock on the city’s benchmark gauge.

The difference between Genting’s share price and analysts’ predictions for where it will be in 12 months narrowed yesterday to the least since December 2013, according to data compiled by Bloomberg.

Twelve-month average price targets dropped to $1.24 from $1.55 a year ago, compared with a closing price of $1.155 yesterday. While more than half of analysts still have buy ratings, at least nine of the 21 covering the stock cut forecasts after the casino operator this month reported a 50 percent plunge in quarterly profit.

A 12 percent rally in the stock since the start of a share buyback on Nov. 13 will be short-lived, according to CLSA Asia Pacific Markets. Genting is still down 23 percent this year as casino receipts tumbled on a slump in Chinese visitors, the biggest source of revenue.

The shares trade at 23.1 times estimated earnings as of yesterdays, compared with Macau gaming companies such as Sands China Ltd. at 18.1 times and Galaxy Entertainment Group Ltd. at 19.5.

“It’s good that Genting is returning cash to shareholders but the scale of the buyback is too small to have a meaningful impact,” Richard Huang, an analyst at CLSA in Hong Kong, said by phone on Nov. 20. “Genting’s valuation isn’t that attractive compared to the Macau casinos. The company won’t have very exciting growth for the next few years because casino revenue in Singapore isn’t growing and the new casino projects in South Korea and Japan haven’t started.”

Casino Projects
When announcing quarterly results on Nov. 11, Genting said it and partner Landing International Development Ltd. are waiting for government approval to start building their proposed $2.2 billion casino resort on South Korea’s Jeju Island.

The company is also waiting for Japan’s decision on whether to allow casinos. Prime Minister Shinzo Abe dissolved parliament last week as he prepares for elections.

The downside for Genting appears limited as the share buyback provides support for the stock in the short term, according to Macquarie Funds Management.

Genting was authorized by shareholders to repurchase as much as 1.22 billion shares, or 10 percent of its outstanding stock, in April. The company only started the program on Nov. 13, a day after the shares sank to a four-year low.

From then through yesterday, the company spent $63.8 million ($49 million) buying back 58.6 million shares, the latest regulatory filings show.

Lee Sin Yee, spokeswoman for unit Resorts World Sentosa, declined to comment on the timing of the purchases, which were made at between $1.015 and $1.15 apiece.

The shares fell 0.4 percent as of 11:07 a.m. in Singapore, erasing earlier gains of as much as 0.9 percent.

‘House Wins’
“The buyback does provide a perceived backstop for the stock,” Sam Le Cornu, senior portfolio manager at Macquarie Funds, said by phone on Nov. 20. “That’s a sign of confidence on the part of management. They think the share price is too cheap. In the long term, the house will always win.”

Genting’s third-quarter net income dropped to $97.4 million from $193 million a year earlier.

Though it may be too early to conclude that earnings have bottomed out in the third quarter, growth will be stable in the coming quarters, supported by increasing mass-gaming market revenue and the opening of Genting’s new hotel in the western Singapore town of Jurong, according to Maybank Kim Eng Holdings Ltd.

The 550-room hotel will open in the second quarter of 2015, according to Genting. The company’s 1,500 hotel rooms run by unit Resorts World Sentosa, which also operates the convention center and the Universal Studios theme park, were 95 percent filled in the third quarter, it said.

Gaming Outlook
“We’re going to see very steady earnings growth going forward,” Samuel Yin, an analyst at Maybank Kim Eng in Kuala Lumpur, said by phone on Nov. 20. “The mass-gaming market is still growing.”

The continuing weakness in the VIP gaming segment, which is being dragged by the slowing economic growth in China and the government’s anti-corruption campaign, will offset improvements in the mass gaming market, according to CLSA’s Huang.

Visitors to Singapore declined 3.3 percent to 10.3 million in the eight months through August from a year earlier as arrivals from China plunged 29 percent, according to the data Singapore Tourism Board.

“I will take a more wait-and-see approach on Genting,” Alan Richardson, an investment manager at Samsung Asset Management Co. in Hong Kong, said by phone on Nov. 21.

“For the foreseeable future, the profitability of the business will still deteriorate. It could take a while before fundamentals actually start to turn.”

Genting Singapore  0.900 -- --   
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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