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Hot stock: Genting Singapore down 8% at midday; analysts positive on long-term prospects

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Mainboard-listed Genting Singapore faced a heavy selloff in early trading session following Wednesday's announcement by the government that a 50 per cent increase in casino entry levies for Singaporeans and permanent residents will kick in on Thursday.

EVEN as analysts remain positive on Genting Singapore's long-term prospects, the casino operator faced a heavy selloff as investors focused on short-term effects, such as the impact of a 50 per cent increase in casino entry levies for Singaporeans and permanent residents that kicked in on Thursday, and higher casino tax rates that will take effect in March 2022.

The capital expenditure required for the S$4.5 billion reinvestment plan for Resorts World Sentosa (RWS) could also be weighing on investors' minds.

At the midday close, shares in the Casino operator were down 8.5 Singapore cents, or 7.9 per cent, at 98.5 cents on 127.4 million shares traded.

Additional gaming provisions were also handed to Singapore's two integrated resorts (IRs) as they commit to a S$9 billion investment to ramp up facilities and attractions over the next few years.

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The exclusivity period for both casinos, Genting's RWS and Las Vegas Sands' Marina Bay Sands (MBS), have been extended past the original 2017 expiry date to end-2030 instead.

On Thursday's selloff, a trader The Business Times spoke to said: "There is sentiment among investors to sell off to a support of around S$0.98 to S$1.00 before analysing the detailed impact of the levies, tax tiering and investment required for the IRs."

Brokerages also highlighted that the casino entry levy and tax rate hikes are a short-term hit to earnings, but are generally positive of the long-term implications from Genting Singapore's S$4.5 billion reinvestment plan for RWS.

Maybank Kim Eng has lowered its recommendation on Genting Singapore to "hold" with a target price of S$1.12. Maybank Kim Eng analyst Yin Shao Yang said that the "casino entry levy and tax rate hikes will weigh on short-term earnings before its potential is realised in 2024-2025".

RHB Research Institute has also downgraded Genting Singapore to "neutral" and lowered its target price from S$1.22 to S$1.08, adding that its call is in view of RWS’s higher-than-expected capital expenditure (it had a previous guidance of S$1billion) for redevelopment plans and a three percentage point hike in the gaming tax.

CGS-CIMB has maintained its "add" call on Genting Singapore on longer-term positives, but like others, has lowered its target price for the stock - now S$1.11 - as analyst Cezzane See said that "near-term plans will likely reset its earnings growth and cash pile".

Given that Genting Singapore is also considering project financing for its reinvestment plans for RWS, there is still a "sufficient current cash pile of around S$4 billion for the casino operator's plans for a Japan endeavour", Ms See added.

UOB Kay Hian has maintained its "buy" call on the casino operator, but lowered its target price from S$1.32 to S$1.26. The brokerage is bullish compared to its peers.

Its analyst Vincent Khoo said the level hike should have only "a modest impact on Genting Singapore’s earnings" which is estimated to have a 6 to 7 per cent direct impact on the casino operator's bottom line in 2022. This is likely to be offset by the incremental gaming and non-gaming earnings from RWS’s cumulative future reinvestments of at least S$4.5 billion, he added.

OCBC Investment Research's Carmen Lee maintained her "buy" call on the casino operator with a fair value of S$1.31.

Meanwhile, DBS Equity Research is most bullish on Genting Singapore, maintaining its "buy" recommendation with what is a street high target price of S$1.54.

DBS analyst Mervin Song noted: "Given that a large proportion of the new hotel rooms and attractions are expected to be opened after 2022 when the 3 per cent increase in gaming taxes is implemented, there may be a short one to two-year window when Genting Singapore’s earnings are tempered.

"However, we understand that the increase in tax rate may be offset by the opening of some attractions such as the Oceanarium and growth in the overall gaming business."