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ASEAN STOCK WATCH 14  August  2010

Shayne Heffernan Issues Strong Buy on Genting Bhd

Shayne Heffernan

Genting Bhd, which holds a 52% stake in Genting Singapore PLC, has been re-rated to a stong buy by Shayne Heffernan of Ebeling Heffernan based on an impressive second-quarter profit performance of S$396.5mil, compared with a loss a year earlier.

Shayne Heffernan put a RM 20 price target on the stock currently trading at M8.18 Genting Singapore’s (formerly Genting International Public Ltd) revenue surged to S$979.3mil in the three months to June 30, compared with S$120.1mil previously boosted by improved earnings from its new RM4.7bil integrated casino resort, Resorts World Sentosa.

Genting Singapore (GENS) has raked in almost S$1 billion in revenue for the second quarter with net profit coming in at close to S$400 million.

For the quarter ended June 30 – the first full quarter with Resorts World Sentosa (RWS) contributing to the bottom line – GENS reported revenue of S$979 million, up from just S$120 million a year ago.

Net profit in the quarter also increased significantly to S$397 million, up from a loss of S$50.7 million a year ago. These numbers simply flew past market expectations.

GENS said that RWS alone recorded revenue of S$860.8 million in Q2. It added that earnings before interest, taxes, depreciation and amortisation (Ebitda) of S$503.5 million for the quarter represented an Ebitda margin of 58 per cent, ‘at the back of higher than industry average win percentage in the premium players market’.

At its Universal Studios Singapore, daily maximum capacity has increased to about 8,000 with an average visitor spend of S$84 while hotel occupancy at RWS was 70 per cent with an average room rate of S$263.

The number of foreigners visiting RWS also appears to be increasing. Previously, analysts had estimated that Singaporeans made up about 40 per cent of the visitors to the RWS casino. In a press statement released yesterday, GENS president and chief operating officer Tan Hee Teck said the results were ‘powered by overseas arrivals’.

He said: ‘The Singapore Tourism Board (STB) has been doing a good job and the whole tourism industry has been on a buoyant spin. Two-thirds of the visitors to the casino, for example, come from overseas. Many of them include Universal Studios Singapore and Voyage de la Vie (RWS’s resident theatre show) in their itineraries.’

OCBC Investment Research analyst Carey Wong said that GENS’ performance was ‘a lot stronger than expected on the topline’.

‘It suggests that the Singapore market is a lot bigger than what people were expecting,’ he added.

Mr Wong also noted that the opening of Marina Bay Sands (MBS) in the quarter did little to cannibalise customers. ‘Let’s be honest – within such a small place, gamers tend to flit from one to the other. Hence cooperative competition is benefiting both,’ he said.

Vincent Khoo, UOB Kay Hian’s head of research for Malaysia, was also pleasantly surprised by GENS’ performance, describing it as ‘astoundingly strong’.

Indeed, GENS Q2 performance seems to put it on track to hit more bullish full-year earnings targets.

While there has been no consensus on how well Singapore’s nascent gaming market will perform, bullish estimates for total gaming revenue for both RWS and MBS combined have been around US$3 billion, suggesting that both casinos register combined daily gaming revenue of S$11-12 million.

A DBS Vickers report released this week estimated that MBS’s first 65 days of operations saw daily gross win of US$4 million while RWS saw US$4.9 million daily for its first 45 days.

GENS did not reveal its gaming revenue for the quarter. However, based on RWS’s total revenue of S$860.8 million for Q2, average daily revenue works out to about S$9.45 million.

GENS’ UK casino operations registered revenue of S$104.9 million for the quarter, a decrease of 3 per cent year-on-year while Ebitda fell 25 per cent to S$9.1 million.

In July, GENS announced that it was seeking to divest its UK operations.

Earnings per share for the six months ended June 30 was nil compared to a loss of 0.8 cent in the corresponding period a year ago.

But the market’s 1.32 percent week-on-week drop is hardly a cause for concern.


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