SINGAPORE (Aug 5): It might not be wise to bet the farm on Genting Singapore (GENS), especially after 2Q16 results announced on Thursday saw it extend its multi-quarter losing streak.
The casino and resorts operator posted a narrower net loss of S$10.5 million in the second quarter ended 30 June 2016.
Revenue fell 16.8% in 2Q16 to S$480.9 million, down from S$578.1 million a year ago.
“Blame it on bad luck,” says RHB’s team of analysts in a Friday report, adding that the subpar VIP luck factor marred an otherwise “decent” 2Q16 showing.
“2Q16 core net profit of S$6.1 million appeared to be a headline miss,” says CIMB analyst Jessalynn Chen.
But, there are “positive signals” that Genting Singapore might have turned the corner.
“While GENS had a weak 2Q16, there were positive signals as hold-adjusted EBITDA was close to flat q-o-q and Macau is showing signs of stabilisation,” says DBS analyst Mervin Song. “We believe we are now close to seeing a potential recovery in earnings in FY17.”
So, is it time to roll the dice and take a gamble on Genting Singapore?
“Following two tough years, we believe now is the opportune time to buy into a highly cash generative business in a two-player oligopoly,” says Song.
DBS is upgrading its recommendation for Genting Singapore to “buy” with an increased target price of 91 cents, from its “hold” call and 79 cents target previously.
Song believes Genting Singapore has an ace in the hole: it is sitting on net cash of close to S$3.4 billion, which puts it in a strong position to take advantage of opportunities in new casino markets.
The possibility of Tokyo passing a legislation to legalise casinos in Japan is on the cards, which could open the door for GENS to potentially bid for a casino licence to operate there.
UBS has a “buy” recommendation on GENS, with a price target of 95 cents.
Meanwhile, GENS’s proposed integrated resort in South Korea is reported to be on track and progressing well.
Resorts World Jeju (RWJ) launched part of Phase 1 of its residential development in March, and has sold 50% of units launched so far. The rest of the resort remains on track for soft opening in October 2017.
CIMB’s Chen lists “upside from RWJ starting 2017” as one of the reasons underpinning CIMB’s “add” recommendation for Genting Singapore, with an unchanged target price of 89 cents.
Other upsides include potential volume growth in the higher-margin mass gaming segment, easing bad debt charges, and cost savings from GENS’s right-sizing exercise, according to Chen.
RHB, however, believes GENS’s mass gaming segment is unlikely to benefit from the surge of tourist arrivals to Singapore, particularly from China.
While the number of Chinese visitors grew 53.2% y-o-y to one million in the first four months of the year, RHB says “the increase was likely due to an influx of visitors from Tier-2 cities, which are typically less affluent”.
In addition, RHB says the current cautious economic sentiment could “impede gamblers’ appetites”.
As a result, RHB downgrades Genting Singapore to “neutral” from “trading buy”, and lowers its target price to 82 cents from 91 cents previously.
As at 3.31pm, Genting Singapore is trading 5.0% lower at 75.5 cents.