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Genting Singapore Ltd’s Latest Earnings: Primed for IR Expansion and Japan Opportunity

Genting Singapore Ltd (SGX: G13) is a gaming and integrated resort (IR) company which owns the flagship Resorts World Sentosa in Singapore, one of the largest fully-integrated destination resorts in South East Asia. Genting recently reported its Q2 2019 earnings, and certain aspects of it were interesting to take note of.

A downbeat set of earnings

Even though revenue climbed 14% year-on-year to S$636.7 million, net profit declined by 5% year-on-year to S$168.4 million. Digging deeper into the management discussion and analysis section, underlying mass gaming experienced a big decline, but this was offset by Genting’s efforts to expand into regional markets. This explains why selling and distribution expenses rose by 19% year-on-year, and this marketing should continue as Genting is trying to smoothen out the negative impact of the decline in mass gaming.

On a slightly brighter note, the group enjoyed a favourable rolling win percentage in the VIP gaming business and its hotels registered a healthy occupancy rate of 85%.

Searching for new growth avenues

Genting has provided a sobering outlook for the rest of 2019, as uncertainty in the regional economic environment continues to dampen consumer sentiment and spending. While Universal Studios Singapore launched an all-new attraction in July and the group also held its RWS Street Eats event in May 2019, these are unlikely to make up for the decline in the top-line from gaming.

Investors should instead turn towards new growth drivers, one of which is the S$4.5 billion mega expansion plan that was announced in April 2019. Recall that this plan will expand the existing IR’s property by approximately 50%, and add an additional 164,000 square metres of gross floor area of leisure and entertainment space. The first phase of this will be the complete revamp of the existing theatre into an Adventure Dining Playhouse scheduled for re-opening in 2021. Subsequent phases will see two new luxury hotels of 1,100 rooms being built as well as state-of-the-art MICE (meetings, incentives, conventions and exhibitions) facilities.

The group has also received the confirmation notice for its Osaka request-for-concept proposal to build an IR there, and this good news implies that things are moving ahead.

Multi-year patience required

As the above plans will only come to fruition in the next few years, investors need to ensure they have the patience and conviction to stay the course. Genting may have to take on an additional debt load to finance the construction of the IR expansion, and this will weigh on earnings in the near term. Assuming Genting wins the license to construct the new IR in Japan, it will also end up being a heavy burden for the group as the capital cost needed is significant, and the new IR can only contribute to revenue and earnings upon completion. Investors, therefore, need to stay the course and continue to monitor developments.

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The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. Motley Fool Singapore contributor Royston Yang does not own shares in any of the companies mentioned.