05 May 2014

Genting Singapore - 2014Q1 Result Improved - May 2014

For the first quarter of 2014, the Group reported revenue of S$828.8 million, adjusted earnings before interest, tax, depreciation and amortisation (“Adjusted EBITDA”) of S$400.3 million and net profit of S$257.6 million.

Resorts World Sentosa (“RWS”) – Singapore Integrated Resort (“Singapore IR”) generated revenue of S$828.3 million and Adjusted EBITDA of S$402.4 million in the first quarter of 2014. Compared to the first quarter of 2013, the gaming business registered a strong year-on-year revenue growth of 29% on the back of higher rolling volume and win percentage in the premium player business. The non-gaming business recorded a revenue growth of 6% compared to the first quarter of 2013 attributable to higher revenue from the attractions and hotel segments. Our attractions enjoyed a daily average visitation of about 16,000 while the hotel business continued to register high occupancy rate of 92% and an average room rate of S$409.

During the three-month period ended 31 March 2014, the Group invested in a portfolio of quoted securities, unquoted equity investments and compound financial instruments amounting to a net total of S$240.1 million. The Group’s equity injection and shareholder loan to its associate, Landing Jeju Development Co., Ltd, in relation to the development of an integrated resort in Jeju, Korea amounted to S$195.0 million.

Other than the above and as disclosed in the other notes, there have been no material factors that affected the cash flow, working capital, assets or liabilities of the Group.

Our flagship property Resorts World Sentosa achieved significant year-on-year growth on the back of higher rolling volume. Looking ahead however, we will closely monitor the economic developments in the region as the environment appears to be more challenging. We have to dynamically calibrate our credit policies and balance our marketing thrust. Operational profitability remains our priority.

In the face of increasing regional competition, we are streamlining our resort operations and implementing new initiatives to enhance our customer service. We also continue to refresh our offerings and introduce new products. In 2014, our guests can look forward to new attractions in our promenade area and a new exciting attraction in Universal Studios Singapore.

Our Jurong hotel development is progressing well. We have completed the top-down excavation and basement works are currently in progress. Structural works are now at the fifth level. The hotel is on schedule to open in the middle of 2015.

At the Group level, we have on 26 March 2014, completed the transaction to invest in the Jeju, South Korea integrated resort. We are in the process of finalising the development plans and obtaining the relevant approvals from the local authorities.

We continue to be active in researching, analyzing and forming task forces for suitable opportunities within our core expertise. Japan has tabled in Parliament the Casino Introduction Bill and it is scheduled to be read within the next few weeks. With this exciting advancement, we have organized a dedicated project team to understand, monitor and prepare for developments in the near future. We will partner Japanese institutions that will add to the strength of our proposal for an integrated resort in Japan. Such a proposal will also require very significant financial resources that our Group is in a well- placed position to execute.

My Comments
The company is now trying to boost its long term profits via various ways:

  1. Expanding in Singapore by attracting more visitors to come and visit Resort World Sentosa. As you could see, a 6% increase in non-gaming sector would increase more than 20% in gaming sector, it means that for every 1 dollar increase in spending in universal studio and other non-gaming sector for a visitor, it could potentially bring in additional S$3 - S$4 dollars in gaming sector. Average daily 16K visitors would translate to an average yearly 5M - 6M visitors. 
  2. Investing in financial assets. It is just a waste if the company just do nothing but park the excess cash in the banks. So one of the ways to increase the return is to park it under financial assets. 
  3. Venturing oversea - Korea and currently studying the possibility in Japan. This would be the most positive catalyst in long run as mentioned by the management, Jeju project could attract population of around 800 million while Japan market is estimated at 2 - 3 times bigger than Singapore market.
Given annualized EPS of about 7.44 cents, the estimated annualized PE would be around 17X, which I think is quite reasonable for a casino operator. A PB ratio of about 2.0X also values Genting Singapore at reasonable level. 

I believe that the price of Genting Singapore could be strengthened after Korea and Japan project could be finalized soon. While I am not too sure what is the economic profit Jurong hotel could bring it to Genting Singapore, I believe it is partly to return a favor to Singapore government to grant it a gaming license in Singapore by participating in Singapore government's plan to making Jurong another Satellite town like Tampines. 

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