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Profits Show Slight Growth at Genting Singapore PLC

Casino and integrated resort operator Genting Singapore (SGX: G13) released its earnings for 2013 yesterday evening and saw a slight dip in revenue while profits barely moved.

Genting Singapore’s main business interests currently lies in Resorts World Sentosa (RWS) in Singapore. It houses, among others, a convention centre, museum, restaurants, hotels, the world’s largest oceanarium, the Universal Studios Singapore theme park, and most importantly, a casino.

Some basic numbers

For the 12 months ended 31 Dec 2013, the company saw its revenue slip by 3% year-on-year to S$2.85 billion while profits inched up by only 1% from S$588 million to S$589 million.

Genting Singapore splits its revenue stream into two categories: Singapore IR, and Others. The former makes up an overwhelming majority (99.9%) of the company’s total revenue so that’ll be our only focus.

Within the Singapore IR category, there’s another split into Gaming and Non-Gaming. As its name suggests, Gaming revenue has much to do with Genting Singapore’s casino within RWS. During the year, Gaming revenue had gone down by 8% to S$2.185 billion.

On the other hand, Non-gaming revenue – which consists of revenue from all the other facilities within RWS – climbed 18% from S$558 million in 2012 to S$660 million. That’s encouraging for investors as it shows the company’s starting to diversify its revenue base. In particular, Genting Singapore had seen “healthy growth with strong visitation” for its Non-gaming attractions during the fourth quarter of 2013.

There were a number of reasons leading to the company’s very slight profit growth despite a shrinking bottom line. Firstly, finance costs (i.e. interest expenses and the likes) had dropped by 20% from S$67 million to S$54 million; secondly, the company’s share of results from its joint ventures and associates had ballooned from S$4.3 million in 2012 to S$36.6 million in 2013; and finally, the previous two factors had helped to offset a 7% decrease in operating profit from S$928 million to S$863 million.

Genting Singapore has declared a final dividend of S$0.01 per share for the year, unchanged from its dividend of S$0.01 per share in 2012.

Operational highlights and the balance sheet

During the fourth quarter of 2013, the company had seen RWS’s various attractions attract more than 20,000 daily visitors, while its hotels had achieved an occupancy rate of 92% with an average room rate of S$411.

With the hotels, there are some mixed-signals going on compared to 2012 as its occupancy rate was lower back then at 91% even though its average room rate was much higher at S$447. Meanwhile, it’s a little to tough compare visitor numbers with that of 2012 as Genting Singapore only reported daily visitor numbers for Universal Studios Singapore and the Marine Life Park for the fourth quarter of that year.

The company’s balance sheet also gave out some mixed signals. On one hand, it had weakened somewhat compared to a year ago as its net cash position (total cash minus total debt) had dropped from S$1.686 billion to S$1.412 billion. On the other hand, Genting Singapore’s gearing ratio – a metric that’s closely monitored by management – had improved from 23% to 18.7%.

What’s next for Genting Singapore

In the company’s earnings release, it revealed that toward the end of 2013, RWS had “join[ed] forces with fourteen businesses and stakeholders from the Sentosa and HarbourFront area to form an association that will promote the precinct as the preferred leisure, lifestyle and MICE [Meetings, Incentives, Conventions, and Exhibitions] resort destination in the region. Leveraging the collective destination appeal of the precinct is especially important at a time when other regional destinations are looking to replicate [Genting Singapore’s] successful [integrated resort] model.”

To go slightly off-tangent, the company’s push to promote the Sentosa/HarbourFront precinct as a go-to destination in the region for MICE events might even result in tailwinds for companies like Kingsmen Creatives (SGX: 5MZ), an important MICE-industry player here.

Coming back to Genting Singapore, the company also shared its positivity about its business, though it’s “mindful of the overall Singapore tourism outlook.” The casino and resort operator added that it would be increasing its marketing spending to attract more foreign visitors, a move that might “potentially dilute [its] yield.”

Elsewhere, the company’s also facing cost pressures from a tight labour market and other sources. Though Genting Singapore would be trying to improve its productivity, there’s a natural ceiling for gains from productivity measures due to the labour-intensive nature of its business.

Earlier in Feb 2014, the company announced a partnership with Hong Kong-listed property developer Landing International Development to develop and run an integrated resort in Jeju Island, Korea. If the venture works out, it’ll be a good opportunity to help diversify the geographic base of Genting Singapore’s revenue sources and provide good exposure and experience in terms of operating in a North Asian country. In addition, the company sees a sizeable market in that region with a customer profile that’s “synergistic to [its] Singapore operations.”

Finally, the company will “continue to evaluate other opportunities within [its] core expertise in the gaming, leisure/entertainment and hospitality sectors” whilst keeping a close watch on the proposed passing of gaming legislation in Japan.

Valuation

Investors are certainly not enamoured with Genting Singapore’s results given that it’s down 3.2% to S$1.36 per share at the time of writing (21 Feb 2014, 12:30 pm) even as the Straits Times Index (SGX: ^STI) is up 0.5% to 3,103 points.

At that price, Genting Singapore’s shares are selling for 28 times trailing earnings and carry a historical dividend yield of 0.7% based on its S$0.01 per share pay-out.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing owns shares in Kingsmen Creatives.