Genting is expected to incur further pre-opening losses for its S$6 billion (RM14.68 billion) Resorts World at Sentosa (RWS).
RWS is undertaken via Resorts World at Sentosa Pte Ltd, a wholly owned subsidiary of Genting Singapore plc which in turn is a 54% subsidiary of Genting.
Singapore policymakers had, in recent years, issued two casino licences, with the aim of boosting the island nation’s tourism and services industries. The first casino licence was awarded to Las Vegas Sands Corp which is undertaking the development of the Marina Bay Sands integrated resort.
The second was awarded to Genting for the development of RWS which includes a casino, six hotels, and a Universal Studios theme park. The resort is expected to be opened in early 2010, according to its website.
The integrated resorts are slated for launch in 2010.
“We expect there to be further pre-operating losses coming through in Genting Singapore in 2H of 2009 as the opening date of the Singapore IR (integrated resort) draws nearer, which we expect would drag down 2H 2009 earnings (despite being traditionally the stronger half),” RHB Research Institute Sdn Bhd wrote in a note.
RHB has reduced its target price for Genting to RM7.20 from RM7.40 but kept its outperform call for the stock unchanged.
Looking ahead, the research house said key risks to Genting’s financials included larger-than-expected expenses for the construction of its Singapore resort, lower crude palm oil prices, and less visitors at its foreign casino operations.
Kenanga Investment Bank Bhd, meanwhile, reiterated its buy recommendation for Genting shares with a higher target price of RM7.55 compared to RM6.68 previously, based on sum-of-parts valuation.
“Earnings outlook will continue to be affected by poor UK casino operation which is still clouded by the economic slowdown, significant RWS pre-operating costs including recruitment, training and marketing efforts, and lower than expected tariff increase for Meizhou Wan power plant,” Kenanga said.
Kenanga said expectation that RWS would be opened earlier than Marina Bay should sustain strong buying interest in Genting shares.
Genting’s net profit had fallen 26.3% to RM214.49 million in the second quarter ended June 2009 from RM291.04 million a year earlier while revenue dipped 2.8% to RM2.1 billion from RM2.16 billion as the diversified entity raked in less income from its plantation, and oil and gas units.
At the same time, Genting had also incurred higher pre-opening expenses for its resort in Singapore, besides share of losses in jointly controlled entities and associates.
First-half net profit declined 41.5% to RM427.61 million from RM730.46 million while revenue was down 3.5% to RM4.17 billion from RM4.32 billion.
This article appeared in The Edge Financial Daily, August 28, 2009.