Disappointing first-quarter earnings sent the share price of Genting Singapore slipping below $1 again - a level not seen since April 9 when the stock closed at 97.5 cents.
Analysts say the casino operator's anaemic performance was due to lower-than-expected VIP volumes, a low win rate and high bad debts.
Its stock was among the most actively traded yesterday, with more than 48 million shares changing hands. It closed at 95.5 cents, down nearly 6 per cent or six cents.
On Thursday, Genting Singapore said its first-quarter net profit tumbled 73 per cent to $62.7 million, while revenues fell 23 per cent to $639.2 million as gaming revenue plunged 26 per cent year on year to $494.9 million.
With a large proportion of its VIP high-rollers coming from China, an economic slowdown as well as an anti-corruption crackdown by the Chinese government has hit RWS's VIP volumes - a trend seen also in Macau. But analysts say they were surprised by RWS' lower-than-expected VIP volumes, which was due to a decline in the number of visits from players outside South-east Asia as well as lower amounts gambled per visit.
"On the back of a 22 per cent year-on-year decline in first quarter Marina Bay Sands' VIP rolling chip volumes, we had expected Genting Singapore to report a weak set of results. However, contrary to our expectations of a 25 per cent year-on-year decline, Genting Singapore registered a 50 per cent drop in VIP volumes which was further compounded by a low win rate of 2.5 per cent," DBS analyst Mervin Song said.
RWS' win rate - the portion the casino retains on a $1 bet - was 2.5 per cent for the quarter, which means for every $1 wagered by VIP gamblers, RWS made 2.5 cents. That is below the theoretical average of 2.85 per cent.
Union Gaming Research Macau analyst Grant Govertsen noted that this is "the third straight quarter of materially-lower-than-expected VIP win rate. We can't help but think of an analogy to historical VIP results at other South-east Asian casinos where the more conservative style of play of non-Chinese VIPs tended to result in win rates lower than the expected average of 2.85 per cent."
RHB Group, which maintained a neutral call on the stock, said key risks include volatility in VIP win rates and further weakness in tourist arrivals to Singapore.
Genting's rival, Marina Bay Sands, saw US$415.3 million (S$548 million) in Ebitda (earnings before interest, taxes, depreciation and amortisation) - a measure of operating profit - for the quarter, down 4.6 per cent from a year earlier. Overall revenue slipped 6.1 per cent to US$784.8 million, as casino revenue fell 7.1 per cent to US$631.9 million.
The RWS operator warned that there are no imminent signs of a turnaround in its VIP business and that it is adopting a more cautious approach in granting credit, due to still-high bad debts, which swelled 30 per cent to $76.3 million for the quarter from a year ago.
"Although provisions for bad debts sequentially fell ($76.3 million in the first quarter versus $82 million in fourth quarter 2014), it remains elevated, with collections still a challenge," DBS said. "Thus, to better manage its credit risks and collections, Genting Singapore has made some changes to its commission structure."
Nomura said it does not see much downside to Genting Singapore's share price because it will continue share buybacks, and it is also expanding in northern Asia, namely in Jeju, South Korea and Japan. Mr Govertsen said the legislative body of Jeju recently passed the long-awaited gaming bill. Set to be completed in 2017, the US$1.8 billion Resorts World Jeju project is a joint venture between Genting Singapore and Landing Jeju Development.
"Details are very thin at this point, although we do know that the bill passed by a wide margin and we believe the GGR (gross gaming revenue) tax is likely to remain at a very competitive level of around 14 per cent," he said.
"The next step for Genting Singapore will be to work with the government of Jeju to officially obtaining a gaming license. In regards to Japan, management is more optimistic relative to 2014 and has a high degree of confidence that the recently introduced gaming bill will be passed this year," he said.
Another positive note is its Jurong hotel is now open to visitors, with 144 rooms now available for booking, with the full 557 rooms to be ready by next month, analysts say.
This article was first published on May 16, 2015.
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