Casino operator Genting Singapore Plc has been beating analysts’ expectations for the past two quarters but the firm is still lacking growth opportunities in the Singapore business, says brokerage Sanford C. Bernstein Ltd.
Genting Singapore reported net profit of SGD181.1 million (US$129 million) for the first quarter of 2017, a nearly 17-fold increase from the prior-year period. The firm is the operator of Singapore casino complex Resorts World Sentosa (pictured) and is a subsidiary of Malaysian conglomerate Genting Bhd.
“Genting Singapore had beaten our EBITDA [earnings before interest, taxation, depreciation and amortisation], but with lower than expected GGR [gross gaming revenue] growth, especially in mass market,” said analysts Vitaly Umansky, Zhen Gong and Yang Xie in a note on Wednesday.
“EBITDA has been steadily improving due to final write down of uncollectable VIP receivables, cost cuts and better VIP commission ratio,” said the Sanford Bernstein team. “Although the operating cost structure has improved, we still see lack of growth in the Singapore business,” it added.
The brokerage said that Genting Singapore’s mass-market segment “remains lethargic”, while VIP growth “will be hampered by … new VIP commission pay-out structure, which is uncompetitive”.
Sanford Bernstein said it reduced its forecast for net revenue at Genting Singapore by 2 percent for full-year 2017, to approximately SGD2.32 billion, on lower than expected VIP GGR and non-gaming revenue.
The brokerage however increased its forecast for adjusted EBITDA based on cost cutting and a new VIP commission programme introduced by Genting Singapore. It now expects the casino firm to report adjusted EBITDA of about SGD1.06 billion for 2017, up 16 percent from its original forecast.
A Tuesday note from Japanese brokerage Nomura on Genting Singapore’s parent, Genting Bhd, said that the likelihood of the Singapore business recording SGD1 billion in EBITDA in 2017 could result in the parent’s EBITDA expanding by approximately 20 percent year-on-year in 2017.
Commenting on the possibility of Genting Singapore bidding for a casino licence in Japan, Sanford Bernstein said investors should wait “for more certainty and clarity before implying any value to the company”.
Genting Singapore has made public its interest in bidding for a gaming licence in Japan. Earlier this month, the company said it continues “allocating resources in tandem with the progress of the Japan IR Execution Bill”.
Legislation making casino gambling legal in Japan came officially into effect on December 26. After approval of the enabling bill legalising casino resorts at the conceptual level, a second piece of legislation – known as IR Implementation Bill – has now to be passed, detailing the specifics, including how casinos are administered and regulated.
In Wednesday’s memo, Sanford Bernstein said the lack of clarity around Japan “makes any value attribution to Genting [Singapore] at this stage premature”.
It added: “Along with significant uncertainty about a potential Japan market structure and economics, Genting [Singapore] faces strong competition from other operators in seeking a Japan licence.”
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"The demographics of Tokyo, Yokohama, and Osaka (possible Japanese urban gaming resort locations) warrant larger gaming floors [than 15,000 square metres]"
Analyst at investment research firm Morningstar