Genting Singapore runs out of luck with Q3 profit halved

Singapore

GAMING titan Genting Singapore splayed its chips on the table on Tuesday and revealed markedly weak third-quarter numbers, hammered by poor VIP play, low win rate and concerns that there may be more headwinds ahead.

Quarterly net profit attributable to ordinary shareholders tumbled 50 per cent to S$97.39 million from S$192.98 million a year ago as revenue plunged 17 per cent to S$644.77 million and cost of sales fell just 7 per cent to S$426.9 million.

Including S$29.7 million apportioned to holders of perpetual capital securities - it did the same for the previous corresponding period - net profit fell 43 per cent to S$127.10 million.

The casino operator attributed the weak results to the low win rate - a key operating metric which impacts casino revenue and one that is solely dependant on the luck factor - which hit the VIP business bad.

Gaming revenue from the Resorts World Sentosa integrated resort slipped 21 per cent to S$477.3 million.

"The company suffered due to extremely bad luck," said Somesh Agarwal, senior analyst at Macquarie Securities. He was referring to the much lower win rate of around 2 per cent over the quarter from the previous quarters' range of 2.85-3 per cent.

A major negative for Genting Singapore is the shrinking pool of big spenders at the casino on the back of a slump in Chinese tourist arrivals here who make up a big portion or roughly half of total gaming revenue.

A slowdown in the world's second largest economy, crackdown on corruption and the tragic disappearance of MH370 jetliner has led to fewer Chinese travellers to this region which in turn, has also impacted Singapore's casinos.

It's a dilemma faced by Las Vegas Sands which last month reported a 34 per cent drop in casino revenue from highrollers at Marina Bay Sands to US$9.1 billion in the third quarter.

That quarterly showing by LVS had set the stage for expectations of a steep decline in Genting Singapore's VIP gaming revenue for the third quarter which has weighed heavily on its share price. Year to date, Genting shares have lost over 30 per cent of its value, in stark contrast to the key Straits Times Index which is up 4 per cent. On Tuesday, the counter closed 1.5 cents or 1.4 per cent lower at S$1.04.

As it turned out, the market had good reason to worry. Genting Singapore's earnings per share for the period under review nearly halved to 0.80 Singapore cent from 1.58 Singapore cents. The firm did not recommend dividend for the period, same as a year ago.

Mr Agarwal said a big negative was the falling VIP volumes - overall, it has slipped 22 per cent in Singapore's gaming space while for Genting, it has declined by 13 per cent from a year ago.

"This is the figure we should focus on as the gaming market here has slowed down considerably. If volumes don't grow, nothing else would grow," he added.

On the back of such a woeful backdrop, he deems the street estimates for Genting Singapore's earnings of some S$723 million - according to Bloomberg estimates - for next financial year as "off the charts."

"2014 is not going to be good. 2015, at best, is going to be flat. Management has guided properly that the business is under pressure," he added.

Indeed, it has. Genting Singapore cautioned in its results notes that the Asian gaming and tourism industry was expecting significant challenges amidst an economic slowdown in its major visitor markets and other environmental factors.

It would also have to wait a little longer to push forth its grand ambitions to open up a casino in Japan after Japan's ruling party shelved plans to pass a bill to legalise the principle of casinos in the country in the current parliamentary session.

Genting Singapore said it remained optimistic of the prospects of its plans in Japan.

But the decision to carry over the bill to next year's ordinary Diet session means that the casino resorts - a plan that has drawn some big names in the world's gaming realm - would not be built in time for the Summer Olympic Games in Tokyo in 2020.

"There's no chance of opening the casino by the Olympic Games. That story is over. It also remains a game of probability on whether Genting will get it," said Mr Agarwal.