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Why Genting’s Investors Lost 47% in the Last 5 years!

A veteran investor once said, “Investing is about giving up your purchasing power today in hope for a higher purchasing power in the future.”

In the stock market, it could translate into buying stocks that will increase in value in the future, through share price appreciation and dividend returns.

Both, capital gtowth and dividend returns are driven mainly by profit.

Profit is, in turn, driven by good business performance, which can be characterised by companies with sustainable growth, high margins, high return on equity and low gearing.

In short, investors make money from shares when a company delivers sustainable profitability through strong business performance.

This is how Genting Singapore PLC (SGX: G13) has performed in the past 5 years.

Historical business performance:

33

Source: Company’s Annual Report

Pits Return on Equity has fluctuated between a high of 18.2% to a low of 0.8%. Further analysis is needed because of one-off transactions that impacted the net profit.

From 2010 to 2015, revenue was down by 12%, while operating income fell 68%. The bigger decline in operating income is due to the contraction of the operating margin from 38.9% to 14.1%.

Gearing has declined from a high of 63% to 15% during the period above.

We can see that the business has been facing significant headwinds for the last few years, especially due to the weaker economy and the decline of VIP tourists. One positive, however, is the relatively strong balance sheet.

Total shareholders’ return in 5 years:

  1. Share price – If an investor had bought shares in Genting Singapore five years’ ago, he would have lost about 51%. That’s because the shares have fallen from S$1.51 to S$0.755 today.
  2. Dividend – Genting Singapore has paid a total dividend of 4 cents in the past five years.

Thus, the total shareholder return for the last 5 years = (0.755 -1.51 + 0.04) / 1.51 = 47%.

Key takeway:

The 51% loss is the share price reflects the decline in business performance during the period, while operating profit has fallen by 68% during the period.

Though Genting Singapore did pay dividend during the period, the payout is small when compared to the huge loss in market capitalisation.

Including dividend, a $10,000 investment in Genting Singapore five years’ ago would be worth about S$5,300 today.

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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 Lawrence Nga doesn’t own shares in any companies mentioned.