Is Genting Singapore PLC A Massive Bargain Now?

The last five years or so have seen the share price of casino and resort operator Genting Singapore PLC (SGX: G13) get hit badly. Since reaching a peak of over S$2.20 in 2011, Genting Singapore’s share price is currently languishing at S$0.68.

Genting Singapore’s flagship asset, the Resorts World Sentosa in Singapore, first opened its doors in 2010. But, the company’s shares are currently lower than where they were in that year as well.

So, given the high level of pessimism surrounding the company at the moment, can Genting Singapore be considered a bargain?

Buying assets on the cheap

The company does seem to be trading at an attractive valuation when we look at its net asset value. The company has tangible equity of around S$9.3 billion at the end of September 2015 according to S&P Capital IQ. At its current share price, Genting Singapore has a market capitalisation of S$8.1 billion, thus giving the company a price to tangible book value of 0.87 times.

On the surface, it appears that investors can get their hands on the company’s assets net of all liabilities at a discount.

Not quite

Unfortunately, that is not exactly true. Back in 2012, Genting Singapore had issued perpetual securities worth S$2.3 billion. These perpetual securities are not assets that holders of the company’s common stock can get their hands on. But, the perpetual securities are also accounted for as equity in the company’s balance sheet.

So, investors need to be mindful of the perpetual securities when calculating the net assets of Genting Singapore that are due to owners of the company’s common stock.

In this instance, even though Genting Singapore’s net tangible equity is around S$9.3 billion, only about S$7.0 billion of it (S$9.3 billion minus S$2.3 billion in perpetual securities) can be attributed to holders of the firm’s common stock. In this sense, the company might actually be trading at 1.16 times its tangible book value instead of 0.87.

Opportunities and threats

Looking ahead, the prospects for the gaming industry in the Asia Pacific region is not looking bright, at least over the short-term. Many of Genting Singapore’s industry-peers in Macau are experiencing very challenging market conditions currently.

Now with the risk of China’s economic growth slowing down in the future, it is worth contemplating if Genting Singapore’s business will suffer even more in the future. In the first nine months of 2015, Genting Singapore’s revenue and profit had fallen by 17% and 61%, respectively. Will there be a possible turnaround in its fortunes in the future?

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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.