MENU

Genting Singapore PLC Just Fell To A New 52-Week Low: Is There An Investing Opportunity?

Can things get any worse for Genting Singapore PLC (SGX: G13)? It had a great time coming out of the global financial crisis of 2007-09 as its shares had gained more than 500% from its crisis-lows at its peak of S$2.27 in late 2010.

But since then, the company’s shares have declined gradually and just reached a new 52-week low of S$1.09 earlier today. That’s a decline of more than 50% in four years. What is happening?

What is the market’s perspective?

Over the past few months, the news coming from Genting Singapore has been anything but positive. Analysts had commented that its latest quarterly results were worse than expected. The company’s integrated resort project in Jeju Island, Korea, seems to be facing some regulatory resistance. To top that off, the tragic accidents involving flights MH17 and MH370 have dampened Chinese tourists’ interest in visiting Singapore.

Are there really no positives?

But despite those negative headlines above, Genting Singapore still runs a highly successful integrated resort in Singapore (Resorts World Sentosa) which produces strong and consistent operating cash flow.

Furthermore, the drop in its net profit in the second quarter of 2014 had been mainly due to “net exchange losses relating to investments” of S$34.9 million. Those are likely to be one-off in nature and have almost nothing to do with the company’s core business of running all the entertainment facilities within Resorts World Sentosa. Another profitability metric which does a better job of reflecting Genting Singapore’s underlying business operations is the Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortisation) figure. In the second quarter of 2014, Adjusted EBITDA grew by 1% year-on-year; for the first half of 2014, the metric actually increased by 27%.

As for the project in Jeju Island, any slowdown in its progress might affect the overseas growth potential for Genting Singapore. But, it’s not a limiting factor in the company’s ability to grow its Singapore-based business.

Coming to the recent lack of Chinese tourists, such fear of flying is likely to be a temporary issue which should resolve itself given time.

What’s the real problem?

So, all the challenges that Genting Singapore is facing now do not seem to be serious enough to cause permanent damage. But that said, there’s still an important issue to deal with here and that is Genting Singapore’s valuation. Despite all the negativity and the big slide in its share price, shares of the company are still valued at a trailing price to earnings ratio of around 20 – that’s not a cheap valuation and is also a sign of how highly valued Genting Singapore had been near its 2010 peak.

So, the question remains: Is Genting Singapore poised for a turnaround in price when investors realise that the situation is not that dire? Or, is Genting Sinagpore’s price only now slowly returning to reality after the market’s expectations of future growth had run too far ahead of the company’s business fundamentals?

To keep up to date on the latest financial and stock news, sign up now for a FREE subscription to The Motley Fool's weekly investing newsletter, Take Stock SingaporeWritten by David KuoTake Stock Singapore tells you exactly what's happening in today's markets, and shows how you can GROW your wealth in the years ahead.

The Motley Fool's purpose is to help the world invest, better. Like us on Facebook  to keep up-to-date with our latest news and articles.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.