Genting Singapore Plc, operator of Singapore casino complex Resorts World Sentosa (pictured), has a “more diverse” business mix than the Macau casino operators, and should be able to build the proportion of casino gross gaming revenue (GGR) it receives from mass market players, says a report from brokerage Sanford C. Bernstein Ltd.
“Genting has a good business mix and is generating strong cash flow driven by mass [-market gambling] and non-gaming,” wrote Vitaly Umansky and his colleagues Simon Zhang and Bo Wen in a note issued on Friday.
The institution forecast Genting Singapore’s earnings before interest, taxation, depreciation and amortisation (EBITDA) to grow at 9.4 percent from 2015 to 2018 inclusive, expressed as a compound annual growth rate.
It cited Resorts World Sentosa’s product mix; including a Universal Studios theme park and the property’s Marine Life Park; as positives for mass market appeal.
“We forecast 55 percent-plus of its GGR will come from higher margin mass, while over 23 percent of Genting’s net revenues derives from non-gaming, nearly double that of Venetian Macao [casino resort], which has the largest non-gaming component in Macau,” wrote the Sanford Bernstein team.
The brokerage said the market was “correctly concerned about VIP weakness and increasing bad debt impairment” at Resorts World Sentosa.
Sanford Bernstein stated: “The company has been tightening its credit policy and become more disciplined in credit-driven VIP volume generation. Given benefit of such tightening, we would expect to see gradual improvement in the collections of its receivables.”
Genting Singapore swung into the red with a loss attributable to shareholders of SGD16.9 million (US$12.1 million) in the second quarter of 2015, from a profit of SGD102.3 million in the prior-year period. The bad debt impairment loss was SGD56.6 million in the second quarter of 2015, compared to SGD81.6 million a year ago.
Recent commentary from Morgan Stanley and Union Gaming Securities Asia Ltd mentioned some risk to the Singapore casino market from the Singapore dollar appreciating against the currencies of neighbouring feeder market countries such as Malaysia and Indonesia.
“In the near term, we see continued VIP headwinds and some risk associated with currency depreciation in the key feeder markets (in particular, Malaysia). However, Genting Singapore remains a cash generation engine, which has been negatively impacted by low hold in recent quarters. We continue to view the Singapore gaming market as stable in the face of headwinds and forecast modest growth in 2016,” stated Mr Umansky and his team at Sanford Bernstein.
Fitch Ratings Singapore Pte Ltd said in a note earlier this month that the outlook for the casino gaming industry in Singapore and Malaysia continues to be “stable”, citing “robust” EBITDA margins.
Genting Singapore is linking with mainland China developer Landing International Development Ltd to build a US$2.2 billion casino resort on South Korea’s Jeju Island. The scheme broke ground in February.
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Vitaly Umansky, Kelsey Zhu and Tianjiao Yu
Analysts at brokerage Sanford C. Bernstein