Genting Singapore PLC (SGX: G13), or “GS” in short, is synonymous with its flagship integrated resort, Resorts World Sentosa based in Sentosa. Besides housing an all-important casino, RWS also features 6 uniquely themed hotels and various non-gaming attractions such as Universal Studios Singapore, Adventure Cove Waterpark and the newly-opened Trick Eye Museum. Despite being recognized as one of the main attractions in Singapore, its stock price has not been acting in accordance. Instead, it has fallen 31.3% to S$0.92, as of yesterday’s close. This is just a tad higher than its 52-week low of S$0.915. Can things get any worse for GS, as it struggles with…
Genting Singapore PLC (SGX: G13), or “GS” in short, is synonymous with its flagship integrated resort, Resorts World Sentosa based in Sentosa.
Besides housing an all-important casino, RWS also features 6 uniquely themed hotels and various non-gaming attractions such as Universal Studios Singapore, Adventure Cove Waterpark and the newly-opened Trick Eye Museum.
Despite being recognized as one of the main attractions in Singapore, its stock price has not been acting in accordance. Instead, it has fallen 31.3% to S$0.92, as of yesterday’s close. This is just a tad higher than its 52-week low of S$0.915.
Can things get any worse for GS, as it struggles with the continual drop in earnings and decline in tourist arrivals to the casino?
With the cracking down of corruption by the Chinese government, casinos around the region have seen a sharp drop in their gaming volume, especially in Macau. GS was no exception, with the decline in number of visitors, and in particular, premium players from China (also known commonly as high rollers), which contribute a large part of its revenue.
As a result, GS has been facing slowing or stagnating growth in both its revenue and earnings in the past fiscal year from 1st Jan to 31st Dec 2014. Revenue was down 8% to S$637.9m, while net profits decreased 10% to S$635.2m for the period.
That said, a falling top-line might be the least of GS’s worries. To sidestep the curb in available funds high rollers can commit due to the corruption clampdown, they are actually allowed to gamble in GS’s casino using credit extended by the company. As such, the gambling losses are recorded as trade receivables in Genting’s books, which will be recovered at a later date.
However, this brings us to the next problem. Since these players are usually based overseas, it means that gambling losses incurred may become bad debts if recovery of the funds should be slim. In fact, In 2014, the integrated resort owner had to impair S$262m worth of trade receivables (to impair is to essentially treat the receivable as uncollectable), up 42% from 2013.
My colleague Stanley mentioned, “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 GS’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.”
So, putting it altogether, these three factors have likely weighed down on GS’s shares and contributed to its recent downward spiral.
Are things turning around?
The management team has been aware of the sticky issues mentioned above. In past announcements, GS has already recognised that VIP volumes are likely to remain sluggish in the medium term with the ongoing anti-graft campaign in China. Furthermore, it warned of further credit tightening for its VIP business and more provisions may be needed for the collection of debt from these players.
Nevertheless, on a brighter note, GS is still pressing ahead with its expansion plans. For one, Universal Studios Singapore (USS)’s main attraction – the Battlestar Galactica ride has recently been re-opened with rather positive response. In addition, the new Genting Hotel Jurong is now operational, with the aim of drawing families and the mass players with its affordable room rates.
Last but not least, the main catalyst will probably be the opening of a second integrated resort on Jeju Island, South Korea. That said, GS investors might probably have to hold their horses, as the resort is only due to progressively open in 2017.
Foolish Bottom Line
To round up, weakness in the VIP gaming segment is likely to persist as the anti-corruption drive in China weighs on rolling chip volume and debt collections. As such, it remains to be seen if any contribution from the newly opened hotel and shift in focus to non-gaming attractions are able to offset the negatives from a drop in VIP patronage.
What do you think about Genting Singapore’s situation? Let me know through the comments section below!
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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 contributor James Yeo doesn’t own shares in any companies mentioned.