SI Research: Genting Singapore – Time To Make Some Money

Casino operators used to enjoy record levels of revenue up until the Chinese government under the reign of Xi Jinping decided to crackdown on money laundering activities and capital outflows from China.

This was a huge blow to a majority of the casino operators in the Asia since most of their VIP visitors originate from China, where gambling is illegal. During the Chinese government’s crackdown in 2014, casino operators in Macau saw revenue plunge to five-year lows, further dragged down by a slowdown in China’s economic growth.

There were no indications of recovery up until August 2016, when the global stock markets saw stronger bullish sentiments. For casino operators in Macau, 2017 was a great year as it registered double-digit growth for 10 consecutive months and the highest level of earnings for the past three years. This was very encouraging for Asian casino operators, as it suggests the possibility of recovery in the gaming industry. Despite the higher than expected financial figures, financial performance remains comparable to levels in 2011, which is still well below the all-time high levels.

The Business

Genting Singapore Plc (Genting Singapore) was incorporated in 1984 in the Isle of Man. Subsequently, it was converted into a public limited company on 20 March 1987 and eventually listed on the Mainboard of Singapore Exchange on 12 December 2005. Genting Singapore is 52.8-percent owned by Genting Group, which specialises in developing, operating and marketing casinos and integrated resorts globally.

After securing the contract to build one of Singapore’s very first integrated resort back in December 2006, Genting Singapore introduced Resorts World Sentosa (RWS) in January 2010. As of today, RWS’s core Gaming business houses over 15,000 square metres of gaming space, over 550 tables with more than 13 different games and over 2,400 slots and electronic table games.

Attractions in RWS include Southeast Asia’s exclusive Universal Studios theme park with over 24 attractions and shows in seven themed zones, together with the world’s biggest collection of Dream Works Animation attractions and world’s first Transformers 3D ride. Other leisure attractions include S.E.A. Aquarium, The Maritime Experiential Museum, Adventure Cove Waterpark, Dolphin Island and lastly, Lake of Dreams.

Accommodation offerings in RWS include over six hotels with unique themes such as Hard Rock Hotel Singapore providing over 1,600 rooms in all. Along with it is award-winning ESPA, which rewards visitors with a tranquillity spa experience. Dining and retail shopping options include seven high-end celebrity chef restaurants such as Joël Robuchon Restaurant, Singapore’s only three Michelin Starred restaurant, and Galleria retail area that offers more than 45 luxury brands.

Growth

Genting Singapore recently unveiled its latest dining offering TEPPAN by Yonemura, a Japanese fine dining restaurant helmed by Kyoto-born Michelin-starred chef-owner Masayasu Yonemura, to introduce a three-in-one theatrical dining concept that combines the artistry and showmanship of teppanyaki, flaming cocktails and flambé desserts. After nine months of renovation, it also re-opened Maritime Experiential Museum, Asia’s only maritime silk-road theme attraction, featuring new exhibits and entertainment content in an immersive multi-media setting.

On overseas front, Japan’s Integrated Resort Execution Bill is expected to be tabled in this year’s National Diet Parliamentary session which will see the commencement of the formal bidding process for Japan’s gaming license. With the divestment of the group’s stake in the Jeju development in Korea, Genting Singapore is expected to proactively bid for the license to operate in Japan. Given that Japan is a popular travel destination, the limited number of gaming license to be awarded means that it can be potentially rewarding and hence securing one would be a huge win, judging from the huge success of Tokyo Disneyland, Tokyo DisneySea and Universal Studios Japan.

Strong Sentiments For Singapore

The opening of Naga 2 in Phnom Penh, Cambodia in November 2017 had briefly diverted some Southeast Asian VIPs away from Genting Singapore as NagaCorp’s VIP volume more than tripled to approximately 10,000. Nevertheless, we expect it to be short-lived since NagaCorp reported that their VIP volume fell by 40 percent to around 6,000 in the following quarter, suggesting that VIP volume should return to Singapore’s casinos owing to better overall experiences, considering that Singapore remains one of the top destination choices for luxury travel in Southeast Asia.

Growing economy will surely uplift the top-line for Genting Singapore since approximately 63.5 percent of its total revenue is made of Mass Market Gross Gaming Revenue (MMGGR). Singapore’s gross domestic product expanded by 3.6 percent in 2017 and is forecasted to be 3.2 percent for 2018 according to a poll done by 24 economist and analysts. Additionally, there were indications of stronger consumer sentiments in Singapore from higher retail sales data presented by Singapore Department of Statistics in the recent months. These encouraging figures will certainly drive MMGGR higher or maintain at a modest level.

Financial Performance

Genting Singapore seems to be on track to recovery after recording better financial performance for FY17. Revenue grew by seven percent to $2.4 billion mainly due to higher contributions from gaming revenue. The adjusted earnings before interest, tax, depreciation and amortisation rose by 48 percent to $1.2 billion, and net profit jumped by 78 percent to $685.6 million for the period.

Being heavily reliant on VIP volume, the recent change in its latest credit policy and commission structure for the VIP gaming business proved to be a success since Genting Singapore can now achieve lower impairment on gaming receivables and improve its operating margins. Other segments fared better as well, such as its hotel business which maintained a high occupancy rate of 91 percent and its attraction segment also saw higher daily average visitation that enjoyed growth in the range from six percent to nine percent.

Valuations

As at 16 April 2018, Genting Singapore is trading at $1.17, translating to a price-to-earnings multiple of 23.4 times, well below its average regional peers of 30.6 times. At the current share price, shares of Genting Singapore come off as rather undemanding. Based on price-to-book value (P/B), Genting Singapore’s 1.9 times is also significantly lower than its regional peers’ average 4.2 times P/B (excluding Wynn Macau).

Given that earnings per share more than doubled to $0.05 for the period which indicated stronger profitability and recovery in the local gaming industry, we believe the current share price offers a lucrative opportunity to accumulate on the stock. As such, we think Genting Singapore definitely deserves a second look.