All eyes are on GENS to see if it can sustain in 3Q its stellar 2Q results, where a S$396.5 million (RM937.1 million) net profit caught the market by surprise and triggered a rally in its stock price.
Analysts appeared mixed on GENS’ 3Q results, with OCBC Investment Research bullish and Macquarie Equities Research more reserved.
In a recent report, OCBC maintained its buy call on GENS, expecting it to show an upbeat performance in 3QFY10 ended Sept 30, contributed by higher tourist arrivals.
According to the research house, a record 1.1 million tourists visited GENS’ integrated resort (IR) in July and nearly one million in August. Indonesia continued to lead with 165,000 visitors to the IR while China and Malaysia trailed with 131,000 and 76,000 visitors, respectively.
“These markets (and those within five-hour flight time from Singapore) are the low-hanging fruits that GENS can easily harvest,” said the report.
OCBC also said visitors to Singapore in September would likely set a record for this year due to the Formula One Grand Prix that was held on Sept 24-26.
Croupiers wait for patrons at the newly opened Ladies Club section of Resorts World Casino in Singapore on July 15. Resorts World is owned by Genting Singapore.
The race would have brought in the rich and famous from around the world and it is likely that some would have spent time at the two IRs in Singapore — Resorts World Sentosa and Marina Bay Sands, owned by GENS and Las Vegas Sands Corp (LVS) respectively.
The fourth quarter, which normally sees higher tourist arrivals due to the holiday season, is also likely to be good for the two IRs, said OCBC.
OCBC also said the Casino Regulatory Authority in Singapore has received licence applications from junket operators endorsed by Resorts World Sentosa. It is believed that the junket operators would get their licence by early next year.
“Junkets typically have their own base of high-rollers and continuously source for more of these players. They also provide credit facilities to their clients which help to reduce the credit risk of the casinos; although casinos typically have to pay them commission which is in turn shared with clients,” said the report.
The research house also said Singapore’s gaming market could stabilise at around S$7 billion in 2011 with Resorts World Sentosa maintaining a dominant share of just under 60%.
The recent pullback in GENS’ share price by about 15% since it peaked at S$2.18 in mid-September is deemed healthy, according to OCBC.
“The run-up after GENS’ spectacular 2QFY10 results was probably a bit too fast, too furious; hence we view the pullback as healthy,” said OCBC which has revised its target price for GENS to S$2.38.
Macquarie, however, has lowered its recommendation for GENS, from outperform to neutral, with a target price of S$1.75.
According to Macquarie, GENS’ performance peaked in April, prior to the opening of Marina Bay Sands.
“Since then GENS’ performance has been slightly lower and has stabilised. We are projecting its 3Q performance will decline by around 5% quarter-on-quarter which looks reasonable given that competition from Marina Bay Sands has now fully ramped up,” said the research house.
Macquarie also expects regional competition to intensify when Hong Kong-listed Galaxy Entertainment Ltd opens its large integrated resort facility in Macau in the first quarter next year. Visits to Singapore from China and Hong Kong would likely be affected.
The research house also believed that GENS’ credit-driven VIP model, which had largely contributed to the high revenue in 2Q, might not be sustainable.
“Our calculations suggest that 20%-25% of the VIP rolling chip at Resorts World Sentosa over 2Q was credit-driven. We believe relatively aggressive extension of credit is helping the VIP volume at Genting’s casino; it is being used to attract players until junkets are approved.
“However, we think it is unlikely to continue in the long term. As we believe there is low likelihood of junkets being approved in Singapore, we see a risk that Resorts World Sentosa may need to curb credit extension which would impact 2011 volumes,” said Macquarie.
The report also considered political risk as there has been significant noise over the extent of locals gambling in the casino, which has resulted in the regulator in Singapore ending the bus shuttle service, run by Resorts World Sentosa and Marina Bay Sands, taking locals to the casinos.
by Sharon Tan
This article appeared in The Edge Financial Daily, October 7, 2010.
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