When Will Genting Singapore PLC’s Business Recover?

Casino and resort owner Genting Singapore PLC (SGX: G13) has had a horrible start to 2015 with its revenue and profit falling 23% and 64% respectively in the first quarter of the year. Investors hoping to see a recovery soon may not want to keep their hopes too high.

The bad and ugly

According to a recent Wall Street Journal article, Macau’s gambling revenue has fallen for 13 straight months in June; the revenue figure for the month had even logged a 36% year over year decline to US$2.17 billion. Genting Singapore’s casino is located in Singapore, and Singapore is not Macau. But, the data from the territory is emblematic of the decline in the entire gambling industry in Asia.

The Wall Street Journal article cited a crackdown on corruption in China as a reason for the tough experience Macau’s gambling industry is facing now (this is by extension, a problem that Asia’s gambling industry is facing too). That’s not likely to abate anytime soon.

Just last month, the National Audit Office of China produced audit reports on 15 state-owned enterprises (SOEs) showing irregular financial practices and disciplinary violations in their accounting. These companies had collectively falsified close to US$5.0 billion in revenue and more than US$3.1 billion in profits. Such actions show that the government of China’s anti-corruption drive might still be in its early days.

Beyond that, there are increased restrictions for Chinese citizens when it comes to travelling aboard as well as an increased oversight of UnionPay cards, which many gamers use to fund their gambling.

Given the importance of China in Singapore’s tourism market, these issues have a direct impact on the business of Genting Singapore. Unfortunately, these are problems that are not going away anytime soon, which mean that there’s a real possibility that the company’s gaming revenue will not be rebounding in the near future.

The good

Although the wider gambling market might be in a slowdown and there is little Genting Singapore can do to improve its business, its business model is still highly profitable.

Genting Singapore managed to generate S$293 million in operating cash flow in the first quarter of 2015 and also ended the quarter with a strong balance sheet that had S$4.08 billion in cash and just S$1.70 billion in borrowings. These traits give the company resources that it can use to grow the business.

Foolish Summary

Genting Singapore might be seeing even more challenges pop up in the near future. But, with a strong balance sheet and a business that gushes out cash, it is more likely than not that the company will be able to survive the gambling industry’s current crisis.

The question is, just how long should investors need to wait before the storm clears? That’s something only time will tell.

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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 doesn’t own shares in any companies mentioned.