Genting Singapore Plc, the operator of casino Resorts World Sentosa (pictured), is likely to experience a “somewhat better” 2016 after its stock price declined 29 percent last year, says a new report from Japanese brokerage Nomura.
“2015 was a bad year for Genting Singapore … due to an industry slowdown (Chinese VIPs stayed away) as well as operational weakness … as management scaled back its credit programme to suit a weaker customer mix,” said analysts Tushar Mohata and Alpa Aggarwal in a note on Wednesday.
In November the casino firm posted a 62 percent year-on-year decline in third quarter net profit to SGD37.2 million (US$26.2 million). The decrease was related to a dip in gaming revenues and an increase in write-offs, Genting Singapore stated in a filing.
The casino operator at the time reported adjusted earnings before interest, taxation, depreciation and amortisation (EBITDA) of SGD209.2 million for the three months to September 30, down 18 percent from the prior-year period.
The Nomura team said in Wednesday’s note it expected Genting Singapore to perform better in 2016 under more stable conditions.
“We believe that Genting Singapore will be able to sustain [about] SGD200 million quarterly adjusted EBITDA in the midst of its conservative credit programme and aggressive impairments,” said Mr Mohata and Ms Aggarwal.
The stabilising adjusted EBITDA run rate “points to a stabilisation of earnings, provided there is no wild swings in the win rate,” they added.
Nomura’s full-year 2016 EBITDA estimate for Genting Singapore is “7 percent lower than consensus” at SGD928 million.
The brokerage reduced its EBITDA estimates for the period between 2015 to 2017 due to Genting Singapore’s “lower VIP win rate and mass-market revenue”.
“Singapore is experiencing a continuing slowdown in VIP visitation, which is negatively affecting the VIP gaming business in the country. And with weaker inbound tourism, the mass-market business is also impacted,” said the analysts.
The Nomura team said it continues to rate Genting Singapore’s stock “neutral”, as it does not expect “much improvement in earnings and most of the catalysts are at least a year away”.
Genting Singapore has a partnership with mainland China real estate developer Landing International Development Ltd to build a US$1.8 billion casino resort on South Korea’s Jeju Island. The project broke ground in February last year and is scheduled to open progressively from late 2017.
“We expect to receive more updates on the Jeju project through the year as the construction progresses, gearing up for a soft launch in two years’ time,” said Mr Mohata and Ms Aggarwal.
They added: “Management [of the casino firm] is likely to focus more on shareholder returns in the form of share buybacks (and possibly higher dividends) towards end-2016.”
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"If the [Macau casino] concessions are put up for bid, there will also be a lot of giant Chinese companies, some having nothing to do with gaming, which would like to take over these enormously successful casinos”
Professor emeritus at Whittier Law School in California, in the United States, and a visiting professor at University of Macau