KUALA LUMPUR: Genting Malaysia Bhd (GenM) is expected to be a winner of the weak ringgit as bets on the hilltop casino have become even more affordable for foreign patrons coming from neighbouring countries.
Kenanga Investment Bank gaming analyst Teh Kian Yeong opined that more Singaporeans would patronise the casinos in Genting Highlands, which translate into higher hospitality revenue for GenM.
“GenM may see an increase in [the number of] Singaporean visitors,” he told the digitaledge DAILY over the phone, referring to the recent strengthening of the Singapore dollar.
Teh said Singaporeans may opt for Genting Highlands instead of gambling at home, where there are also two casinos, given the current low exchange rate for the ringgit, besides the casino entry levy being imposed on Singaporeans.
On the other hand, he expects Singaporean casino patrons’ trips to the north will eat into the two casinos’ earnings in the republic — one being Genting Singapore plc (GenS).
The Singapore government imposes a casino entry levy of S$100 (RM297) per 24-hour period, or S$2,000 for a one-year pass on Singapore citizens and permanent residents, to discourage them from gambling.
Another gaming analyst said GenM, which operates casinos in the United States and the United Kingdom, would recognise higher foreign exchange gains from its overseas operations.
“Not only that, many Malaysians who gamble in Cambodia and [the] Philippines are likely to return to Malaysia as casinos there are using US dollars,” he said.
TA Securities analyst Tan Kam Meng concurred that the weaker ringgit is positive for GenM, as Genting Highlands generates 75% of its income from the domestic market, with the remainder from tourists and Singaporeans.
In its latest quarterly results, GenM (fundamental: 2.4; valuation: 0.8) posted a 9.24% drop in net profit to RM230.92 million or 4.07 sen a share for the second quarter of financial year 2015 (2QFY15), compared with RM254.43 million or 4.49 sen a share last year.
This was due to higher pre-opening expenses for both Resorts World Birmingham in the UK and the Genting Integrated Tourism Plan development at home. In addition, the group incurred higher depreciation and amortisation charges.
Quarterly revenue, however, grew 4% to RM1.98 billion from RM1.91 billion a year earlier on better contribution from the US operations.
Having said that, Genting Bhd may see some impact from the fluctuation in the currency as a substantial portion of its earnings are derived from its Singapore unit.
However, analysts said the weakening ringgit would have a negative impact on Genting, but not overly material as it would be partially offset by better performance of GenM.
“GenS’ prospects are also not promising, given the decline in visitor arrivals in [the] high roller segment from China” said Teh, referring to the Chinese government’s crackdown on corruption, which threatens casino business in the region.
“Furthermore, the devaluation of [the] yuan will also impact GenS’ earnings going forward [as it becomes more expensive to gamble in Singapore] … China visitors contribute significantly to the group,” he added.
Resorts World Sentosa in Singapore was hit by unfavourable global VIP premium business and a rolling win percentage.
In its latest quarterly results, Singapore-listed GenS swung to a net loss of S$16.93 million for 2QFY15, due to a downturn in the gaming industry in Asia.
It posted a net profit of S$102.29 million a year ago.
Revenue for 2QFY15 fell 23% to S$578.15 million from S$751 million in 2QFY14.
For the whole group, Genting’s (fundamental: 2.1; valuation: 1.4) net profit slipped nearly 82% to RM67.91 million or 1.83 sen per share, no thanks to a RM380 million loss stemming from portfolio investment in Singapore and impairment.
Quarterly revenue was slightly lower at RM4.17 billion against RM4.41 billion a year ago, due to lower contributions from GenS, as well as its plantation and property divisions.
This article first appeared in digitaledge Daily, on September 1, 2015.