Genting Singapore Stock Over-valued?

Posted: November 20, 2010 in Uncategorized

Over-valued stock prices

Contributed by:  William Hudson

20th Nov 2010  SAT

Lion City State press The Business Times reported that Genting Singapore received an “underweight” or “sell” rating from HSBC Global Research despite its strong cash flow and expectations that Singapore may overtake the Las Vegas Strip in terms of gloss gaming revenue by 2013.

The BT also reports that shares of Genting dipped to $2.04 a share on 19th Nov.

According to BT, HSBC analyst said that he sees “little merit in ascribing a significant premium value” for either Genting’s possible entry in new gaming jurisdiction such as Japan, or the anticipated licensing of junket operations in Singapore…

From those who are familiar with insights of Japan gambling market scene and power play, it is a long long shot for Genting to have any hope for establishing a bridgehead on Japan shore.  Steve Wynn is a better bet though.

Analysts who have been tracking Genting’s pass decade business management records, such as investment in UK Stanley casinos, Star Cruises, casino in Philippines, etc. would see a familiar pattern. It is not surprising that the Genting RWS (in Singapore) will also not be well-managed after the initial hype is over.  On the contrary, Marina Bay Sands has regained its footing with good performance.

The scenario that is being played out clearly indicates that Genting RWS self-churned its VIP gaming turnover with large credit exposure for the 2nd quarter result, in order to give the impression of they could muster casino premium business in this part of Asia. The “credit snowball” apparently had run out of steam by the 3rd quarter, primarily because of overly extended credit may have already affected its operating margins. In this case, the 4th quarter operations will pose yet another challenge to RWS.  

We have observed that Genting’s casino mass gaming landscape is being overwhelmed by Malaysian folks and labourers working in the Lion City State. This also indicates that Genting RWS will face big challenge in developing a larger pool of mid-range casino patrons for grow in gaming margin. Therefore, it is expected that RWS operating margins will reduce further over subsequent quarters. This situation will be made worse if Marina Bay Sands were to continue their successful grab of market share away from RWS the next few quarters.  

So going forward, it is not surprising that Genting Singapore shares will plunge further… to match with reality; and it is not only an “underweight” position but it is more of a case of “highly over-valued”. Just look at the dip in Ebitda by 31% on a quarter to quarter comparison and Ebitda margin also dipped by 11% in 3rd quarter, with apparently more buses coming in from Malaysia.  In view of the Malaysian state assemblyman making alarming accusation against Singapore IRs, control measure may be implemented by Malaysian authority sooner or later.  This scenario will further weaken Genting RWS market share.

Yet, it is not surprising that there is another round of self-churning of VIP turnover coupled with “luck factor” that paints a good picture for next quarter’s result announcement.

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