Casino operator Genting Singapore Plc reported a net profit of SGD181.1 million (US$129 million) for the first quarter of 2017, a nearly 17-fold increase compared to SGD10.8 million in the first three months of 2016.
Revenue for the period declined 3.5 percent year-on-year to SGD586.6 million, the company said in a filing on Friday. The firm’s cost of sales however declined 25.4 year-on-year to SGD325.7 million. Operating profit for the period jumped 218.5 percent year-on-year, to SGD261.5 million.
Genting Singapore is the operator of Singapore casino complex Resorts World Sentosa (pictured) and is a subsidiary of Malaysian conglomerate Genting Bhd.
The company reported gaming revenue of SGD434.4 million for the three months ended March 31, down 3.6 percent. Adjusted earnings before interest, taxation, depreciation and amortisation (EBITDA) came in at SGD283.2 million in the first quarter, up 47.1 percent from the prior-year period. The firm said the growth in adjusted EBITDA was supported by an “improvement in operating margins arising from cost efficiency initiatives and substantially lower impairment in receivables”.
“The group’s profit margin continued to improve in the current quarter driven by lower impairment of receivables as a result of a measured credit policy and a commission fee model that incentivises early repayment,” Genting Singapore said in the filing.
The casino operator reported impairment on trade receivables – which includes bad credit extended to VIP players – of approximately SGD15.0 million in the quarter, compared to SGD92.4 million year earlier.
“We think the implied consensus was broadly inline with our estimate based on full-year consensus EBITDA of just SGD945 million,” said analyst Grant Govertsen of Union Gaming Securities Asia Ltd in a note on Friday.
He added: “The delta was driven by significantly improved debt collection resulting in the lowest bad debt provision since inception, as well as ongoing efficiency initiatives.”
Banking group JP Morgan analysts DS Kim, Sean Zhuang and Aditya Srinath said in a Sunday note: “The first quarter beat by Genting Singapore showed the Street [consensus], including us, was underestimating its earnings power. Improvements were seen on all fronts, such as its market share, earnings quality and cost management.”
Genting Singapore completed in January the sale of a 50-percent stake in a casino project under construction on Jeju Island in South Korea. The firm said it recorded a gain of SGD96.3 million for the disposal of its stake in the scheme.
Union Gaming said it does not expect to see a “Macau-like” growth for Genting Singapore, “given the maturity of the market, ongoing currency headwinds, and a right-sized VIP programme”.
“However, a flattish top-line will still yield significant EBITDA growth this year (we estimate +45 percent), followed by modest growth in 2018+,” added Mr Govertsen.
In a separate filing on Friday, Genting Singapore announced that it plans to redeem in the autumn an aggregate of SGD2.3 billion of perpetual equity. The amount was on the balance sheet since 2012 and was originally earmarked for Japan development, according to Union Gaming.
Genting Singapore said it is “allocating resources in tandem with the progress of the Japan IR Execution Bill, which will pave the way for the formal bidding process of the Japan gaming licences”.
Legislation making casino gambling legal in Japan came officially into effect on December 26. The second piece of legislation will detail the specifics for the casino industry in that country: how casinos are administered and regulated; the taxation regime to be applied to them; their location; and the number of licences to be issued.
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”Continued negative coverage of the Abe administration, coupled with political losses for the Liberal Democratic Party ... may reduce support for the gaming agenda, which already has only limited public support”
Analyst at brokerage Sanford C. Bernstein