Fitch Ratings Inc has praised Malaysia-based gaming conglomerate Genting Bhd and its unit Genting Singapore Plc for their “continued strong market position” in the Malaysian and Singaporean gaming sectors, respectively.
“The gaming industry in both these countries is subject to close regulatory oversight, and the resultant barriers to entry impart a degree of stability to cash flows across the business cycle,” added the credit rating agency in a Friday note.
In the same note, Fitch affirmed Genting Bhd and Genting Singapore, as having, respectively, an “A-” rating with a “stable” outlook. That refers to the companies’ respective long-term foreign-currency issuer default rating (IDR).
“Genting Bhd’s ratings reflect its monopoly position in Malaysia and 40 percent market share in the duopolistic Singapore market,” said a note from Fitch, referring firstly to the Resorts World Genting casino property in Malaysia, operated by Genting Malaysia Bhd (also a unit of Genting Bhd); and secondly to the Singapore casino venue Resorts World Sentosa, operated by Genting Singapore.
Fitch added: “Genting Bhd’s leisure and hospitality business in both these countries accounts for 81 percent of consolidated [group] EBITDA [earnings before interest, taxation, depreciation and amortisation].”
Oil palm plantations (5 percent), energy (4 percent) and property, investment and others (10 percent) account for the remaining 19 percent of Genting Bhd’s consolidated EBITDA, said Fitch. The ratings house noted additionally that Genting Singapore contributed 47.2 percent of Genting Bhd’s consolidated EBITDA in 2015.
The ratings house noted of Genting Bhd: “Consolidated EBITDA margin declined to 34.7 percent in 2015 (2014: 36.4 percent), due to a lower hold percentage in the premium players business, a higher number of bad debts written off, and the impact of the 6 percent Goods and Services Tax that has been levied in Malaysia since April 1, 2015.”
Fitch added however: “Genting Bhd’s EBITDA margin continues to be robust, and the entity had maintained its net cash position as of March 31, 2016.”
The agency noted that in Singapore – in full year 2015 and first quarter this year – Resorts World Sentosa’s market rival Marina Bay Sands, operated by Las Vegas Sands Corp, had “cannibalised Genting Singapore’s market share on account of its locational advantage, i.e. proximity to Singapore’s central business district, premium product positioning, and targeting the MICE (Meetings, Incentives, Conferences, and Events) segment.”
Genting Singapore in May reported a first quarter net profit attributable to shareholders amounting to SGD10.8 million, down by 83 percent from the prior-year period. Investment analysts said its results for the period were negatively affected by an increase in impairment losses on trade receivables – which includes bad credit extended to VIP players.
Fitch noted in its Friday analysis that Genting Singapore faced “multiple pressures” in 2015 and the first quarter of 2016. It listed among those “declining revenues, lower EBITDA margins, deteriorating performance of its VIP gaming business, and impairment of credit extended to its VIP customers.”
The credit rating agency added: “These adverse developments were partially offset by the relatively stable performance of its mass-market gaming business. The net cash position is a trend which Fitch expects will be sustained in the medium term.”
The ratings house added that although the 10-year exclusivity period on each Singapore casino resort’s 30-year licence was due to expire shortly, “the government has not signalled the granting of additional licences to date, and Fitch believes the risk is low, given the government’s concerns over problem gambling.”
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"The [Macau] government has a lead in this subject in regards to what should be done after the [gaming] concessions expire. We will be first listening to what the government will say”
Ambrose So Shu Fai
Vice-chairman and chief executive at Macau casino operator SJM Holdings