Tug-Of-Fools: Genting Singapore PLC – The Bear Case

Hi, I’m Louis Kent Lee and this is my bear case for Genting Singapore PLC  (SGX: G13).

Genting Singapore used to be the darling stock of many market watchers. After all, there are only 2 licensed integrated resorts operating in Singapore, which essentially means it’s a duopoly. Well, some sort of it.

There are three main reasons why I think Genting may not be cashing out so often compared to its glory days.

The three reasons are as follows: 1) Weakening VIP high rollers, 2) China’s shadow banking credit clamp, and 3) Overseas opportunities seemingly stalling.

Weakening VIP High Rollers

Chinese visitations of the lucrative VIP crowd that fuels Genting’s coffers are weakening, and this is felt. Genting saw a 13 percent y-o-y drop in VIP volume for 3Q14.
Industry wide, VIP volume for Genting and MBS together, saw a 22 percent y-o-y sharp drop in volume for 3Q14.

Gross VIP revenue commands a 45.1 percent weightage on the overall gaming revenue of Genting, where gaming, as a whole makes up more than 74 percent of the total revenue pie of Genting.


Source: Company

Therefore it is not unusual for revenue to be sluggish when the elephant contributor slows.

Alarmingly, the VIP segment has recorded two consecutive quarters of decline, with 3Q14’s revenue ($364 million) registering the lowest of Genting’s since 3Q12’s revenue of $365 million.

Shadow Banking Clampdown

There is a strong correlation between the VIP segment and China’s liquidity policies.

China has been ramping up its clampdown on shadow banking in China, which has affected a lot of small and medium enterprises’ (SME) liquidity, where credit was previously available before being scrutinised due to clampdown measures.

A reference point of this slowdown was seen in Macau’s gross gaming revenue (GGR) as well, where majority of the gross gaming revenue is contributed by Chinese players.

Apart from the slowdown this round, Macau had similarly experienced two other slowdowns in 2009 (recession) and 2012 (credit growth slowdown). Notably, GGR fell significantly in both instances.

We think it is not remote to think that Macau’s slowdown will drip into the VIP gaming revenue in the Singapore region, as the Chinese players feeling the liquidity squeeze are from the same group.

Overseas Opportunities Seemingly Stalling

Although signs of possible developments and expansions overseas have been one of the things to look at for Genting, it does seem that the stalling talks and materialisations of such plans are continuing to be constantly delayed.

In November 2014, it was confirmed that Genting did not expect Japan to pass its Promotion Law to liberalise casinos in the country. Genting however, expects the bill to be approved probably in late 2015.

Until that officially kicks in, it is still conservative to not put too much value in terms of catalysts re-rating for the Japanese Casino license.

For its Jeju’s project, although Genting is positive that it might be able to break grounds by 2Q15, it is noted that the governor of Jeju is said to be showing resistance to the project and expansion of casinos on the island.

In addition to that, governor Won Hee-ryong announced in October 2014 that he would push for a revision of gaming taxes and to establish a Singapore-style casino watchdog.

This could heighten policy risks like what we have always seen in Singapore, from the entrance levies to limitations of proportion of land space ratio that allows casino operators to use for gaming facilities.


To wrap it up, we think the core revenue driver of Genting coming from the VIP high rollers might not forseeably rebound as fast as one would expect.

Coupling this with the stalling state of negotiations in its plans outside of Singapore in Japan and Jeju, we think it is safe to assume a conservative stance and price them in only when we see solidified plans in action.

You can read The Motley Fool Singapore’s bull argument here.

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