Genting Singapore (SGX: G13) is the owner and operator of Resorts World Sentosa, Singapore. Genting Singapore share price has declined by 10% Year-to-date. The reason for the share price decline can be attributable to the news announced and the macro environment in FY19. We will be looking at the following points about Genting Singapore in this post:
- Financial performance FY18 and 1H19
- Events and news in FY19
For the financial year ended 2018, Genting Singapore generates its revenue mainly from 2 sources: gaming and non-gaming revenue. Non-gaming revenue consists of primarily revenue from hotel rooms and attractions. Below will be Genting Singapore’s revenue breakdown:
As shown in the donut chart above, the majority of its revenue is generated from gaming (66%), while another non-gaming revenue contributes to 34% of Genting Singapore’s revenue. Unsurprisingly gaming revenue provides a high margin as compared to its non-gaming segment. There was no disclosure of the operating margin by Genting Singapore, but taking a look at its peer Las Vegas Sands Corp, the operating margin for the gaming segment was 55%.
In the gaming segment, the revenue can be segregated into two groups: VIP and mass gaming. Each company in the industry have a different win rate, but the expected win by the company would not differ greatly. Below will be win rate for Las Vegas Sands Corp for reference:
The win rate shows that on average for every $100 a person place as a wage, one would expect to leave the premise with approximately $96.76, and Genting Singapore gets to record the $3.24 as its revenue.
According to TheEdge, Genting Singapore’s average VIP table win rate is expected to be at 3%. A significant fluctuation does happen from time to time as seen in the table above, but it will not be sustainable, as it is considered as luck and it will revert back to its mean.
There are several factors that affect the gaming revenue besides its win rates. Factors that will affect Genting Singapore will be the rolling volume (total amount that was wagered), the number of tourist visitors to its integrated resorts or Singapore in general and the general economic outlook around the region.
Resort World Sentosa (RWS) is located on Singapore’s resort island of Sentosa, with a land area of 49 hectares. The key attractions include Universal Studios Singapore, S.E.A. Aquarium, the Maritime Experiential Museum, Dolphin Island and Adventure Cove Waterpark. Other facilities includes 6 hotels and Resorts World Convention Centre.
The operating margin is expected to be much lower as compared to its gaming segment. Key metrics of the segment performance can be measured using hotel occupancy and the number of visitors to its attraction per day.
From past quarters, the daily attraction visitation remains relatively constant across the quarters, at approximately 19,000 visitations per day. Similar to Straco Corporation, the number of daily visitation saw its peak in the Q3 for FY17 and FY18.
Quarterly Hotel business occupancy rate remained above 90% for most of the quarters except for Q2’19 where occupancy rate have slipped below 90% registering an occupancy rate of 85%. Understand that the target audience will be different for RWS and MBS hotel occupants, but to put the numbers into perspective, Marina Bay Sands (MBS) occupancy rate have maintained above 90% for the last 9 quarters and have an average occupancy rate of 96.4% for FY17, FY18, and 1H19.
Financial performance FY18 and 1H19
Over the years, Genting Singapore total revenue have decreased from 2.85 billion to 2.54 billion from FY13 to FY18. This is mainly due to the decrease in gaming revenue from FY13 to FY17. While non-gaming have increased in FY17 from the average 650 million to 800 million in FY18.
Both gross profit margin and net margin and have increased from FY13 to FY18.
 The low net profit margin is due to Fair value loss on derivatives which was 239 million.
Net profit for Q2’19 have decreased by 5%, while revenue increased by 14%, due to an increase in the higher VIP win rate. However, a closer inspection of disclosures, the win rate was higher than the average of 3%. On a hold-normalized basis, the adjusted EBITA would be $230 million, translating to a decline of 20%. The announcement would be one of the factors that caused the price subsequent to Q2’19 result release.
As of 30 June 2019, the balance sheet remained healthy, where Genting Singapore have 3.6billion cash on its balance sheet as compared to total liabilities of 1.16billion. Compared to 31 December 2018, cash decreased by 13.4%, due to the repayment of borrowings of 680million in Q2’19.
PPE is the most significant asset in its balance sheet, taking up 56.6% of its total assets. The assets are leasehold land & properties (65%), theme park equipment (29%).
Current Ratio: 6.13x
Long Term Debt/Equity: 10.70%
Both Liquidity ratio and solvency ratio shows that the balance sheet of Genting Singapore is healthy and currently holds only 10.7% of debt/equity, this provides room for Genting Singapore to take on debt to fund its integration resort expansion plan.
Genting Singapore have strong cash-generating ability, where free cash flow have maintained above 1 billion from FY15 to FY18. While dividend paid to shareholders represents 41% of its total free cash flow. The remaining free cash flow can be utilized for debt repayment or paying for upcoming capital expenditure for its expansion for Resort World Sentosa 2.0 announced on 3 April 2019. This expansion will take place from year 2020 to 2025, with an expected investment of 4.5 billion required.
Events and news in FY19
Expansion of Resort World Sentosa
Genting Singapore announced its expansion of RWS, which will increase its Gross Floor area by 50%. This includes new themed entertainment concepts in Universal Studio Singapore (USS) – Minion Park and Super Nintendo World.
The current S.E.A Aquarium will be expanded 3 times its current size & a new waterfront lifestyle complex with 2 new hotels. This would add up to 1,100 rooms.
The mega expansion plan mainly focuses on its non-gaming segment, which was considered as low margin as compared to its gaming segment. With the expansion in place, we would expect growth in Genting Singapore revenue and a shift in its revenue contribution, more towards non-gaming segment.
The expected Capital Expenditure (CAPEX) of 4.5 billion can be funded partially internally along with debt, as current debt/equity is considered low. Therefore, we do not expect share issuance to take place.
Increase in gaming taxes at the end of 2020
Casino tax will be increased by 3% from March 2020.
The tax rate for VIP will be increased from 5% to 8% for the first 2.4 billion of gross gaming revenue (GGR) and 12% for GGR above 2.4 billion.
The mass gaming tax rate will be increased from 15% to 18% for the first 3.1 billion of GGR and 22% of GGR above 3.1 billion.
As Genting Singapore did not disclose the breakdown of revenue from gaming segment, the proportion of VIP to mass gaming revenue from Marina Bay Sands was used as a proxy.
Based on the calculations, the tax will be recorded in Cost of sales, and will negatively impact Gross profit by approximately 50 million. This amount does not seem material as compared to its total revenue for FY18, as it only represents 1.98%.
As at announcement of Q2’19 results, Genting Singapore have submitted and fully met the application guidelines for Osaka Request-for-Concept (RFC). This provides an opportunity for the Genting Singapore to expand into overseas, potentially increase its top and bottom line. However, in the scenario where it obtained the building of the IR, this would mean a high capital expenditure to be expected in the future in addition to the committed 4.5 billion in expanding RWS. Where Genting Singapore will not be able to fund the construction internally and would require debt or even share issuance.
Overall Genting Singapore share price have declined 10% year-to-date, as we can see there is a change in fundamentals in its profitability. As 2Q’19 profit was propped up by a temporary increase in win rate for VIP games, which will eventually return to its norm. Also, there is uncertainty in the expansion coupled with uncertainty in the regional environment which negatively impact consumer confidence. The above factors have resulted in negative sentiment in the stock and a decline in its share price.
Based on technical analysis, Genting Singapore share price is at $0.87 at the date of writing and currently at its support level, with RSI being oversold. This provides an opportunity to purchase a stock with a healthy balance sheet, strong cash-generating company with a dividend yield of 4.02%.
Note: currently am not vezted in Genting Singapore(SGX:G13).