Integrated resort owner and operator Genting Singapore PLC (SGX: G13) released its fiscal first-quarter earnings (for the three months ended 31 March 2015) yesterday evening.
As a long time shareholder of the company, I have to say that I was surprised – and not in a good way – when I saw the numbers. Here’s why.
The quarter’s ugly earnings
Genting Singapore has been facing challenges with its business in recent times, especially after China’s authorities started to crackdown on corruption in the country. In 2014, signs of strain were evident as the company’s annual revenue grew by just 1% while its profit fell a hard 10%.
But, that was nothing compared to Genting Singapore’s latest earnings release. For the quarter, revenue collapsed 23% year over year to S$639.2 million. As Genting Singapore has lots of fixed costs in its business (you need to staff the resort as well as keep the lights running even if there are lesser visitors), its gross profit fell 49% to just S$182.3 million.
All told, Genting Singapore ended its fiscal first-quarter with a net profit of S$92.7 million, a stunning 64% decline from a year ago. Net profit attributable to the company’s ordinary shareholders suffered an even larger 73% year over year fall to just S$62.7 million.
On the balance sheet front, there’s a bright note as Genting Singapore ended the quarter with a solid net cash balance of over S$2.48 billion (where net cash stands for total cash minus total borrowings), up from S$1.37 billion a year ago.
But even as Genting Singapore’s balance sheet looks strong, there might still be an area of concern. As of 31 March 2015, the company held over S$1.3 billion of “Available-for-sale financial assets.” Most of these assets are described as “compound financial instruments” in Genting Singapore’s annual report and very little information’s provided on them. Shareholders may want to try and find out more about these assets given their large market value.
Genting Singapore typically splits its revenue into three main sources: Gaming, Non-Gaming and Others (the first two segments essentially encompass the casino and non-casino related businesses found in Resorts World Sentosa, Genting Sngapore’s flagship business asset; the last segment can be negligible given that it’s not even 1% of the company’s total revenue). Let’s dig in further with the first two segments.
The Gaming segment saw a 26% drop in revenue to S$494.9 million. Management commented in the earnings release that the “premium gaming market continued to be weak” and that the “Asian gaming industry is adjusting to a new norm.”
Management also added that adjusted EBITDA (earnings before interest, taxes, depreciation, and amortisation) from Resorts World Sentosa had increased by 18% compared to the fourth-quarter of 2014. Efforts by the company to re-model its premium gaming business were cited as a driver for the stronger adjusted EBITDA.
On the Non-gaming segment, revenue fell by 8% year over year to S$144 million. The average daily number of visitors to Genting Singapore’s attractions came in at “about 16,000” during the quarter while the hotel business enjoyed an occupancy rate of 93% with a daily average room rate of S$381. A year ago, Genting Singapore’s attractions also saw an average of 16,000 visitors per day, but its hotel business was stronger; the average room rate of S$409 had made up for a slightly lower occupancy rate of 92%.
What’s next for Genting Singapore?
In the earnings release, management had summed up Genting Singapore’s near-term prospects with the following statement: “The year ahead will be challenging.”
But that said, Genting Singapore’s not sitting still; it’s working to grow its business and one of the firm’s key future growth drivers would be the development of an integrated resort in South Korea’s Jeju Island. On that front, the company reported that the development works are in progress and it’s targeting a progressive opening of the resort from late 2017.
Another possible avenue of growth for Genting Singapore would be casinos in Japan. In its latest earnings release, Genting Singapore mentioned that the Integrated Resort Promotion Bill in the country has been submitted to the national legislature. Currently, casinos are not allowed in Japan but Genting Singapore is keeping an eye on the country if and when the bill’s passed.
For more near-term initiatives, Genting Singapore had recently opened its seventh hotel, the Genting Hotel Jurong, located in (where else?) the Jurong Lake District of Singapore. The 557-room hotel “will play an important role in [Genting Singapore’s] business strategy to drive greater visitation to RWS [Resorts World Sentosa].”
It would seem that things are not getting any better for Genting Singapore anytime soon. It remains to be seen if the firm’s longer term growth plans would pan out too.
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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 Stanley Lim owns Genting Singapore PLC.