2013, A Possible New Year For Genting Singapore?

A market darling of many in the past, Genting Singapore PLC (GS) has seen its share price take a hit in 2012. Although policy risks pertaining to the Casino Control Act, which was tabled last year end and rising regional competition continue to be factors influencing Genting, there are still merits which could see potential hidden for this counter.

A likely wildcard if everything pans out is none other than a possibility of seeing Genting as one of the front runners for setting up the integrated resort (IR) in Japan on the back of faster liberalisation of Japan’s gaming market , and GS’ immense IR experience, strong balance sheet and global network.

Below are some views about GS from the various research houses.

DBS Equity Research

“In the larger context surrounding Genting, DBS Equity Research feels that in view of higher risk appetite which will drive capital inflows into cyclical stocks like Genting, it expects the consumer services sector, which Genting is in, to be one of the key drivers to growth, ahead of recovery in 2013.”

As Genting is influenced by seasonal factors, we feel that the festive holidays building up from Christmas, to the upcoming Chinese New Year to be revenue boosters for Genting. We agree that in the face of a recovery for 2013, the consumer services will likely be benefitting, with a higher risk appetite. It is likely that Genting could very well be one of the beneficiaries of such capital inflow when this higher risk appetite kicks in.

Particularly, UBS Investment Research recommended “Buy” on GS

“We like GS the most out of laggard stocks in 2012. We expect major investment negatives in 2012 to turn more positive. VIP income should benefit from demand growth recovery, especially out of China. While local mass demand may remain stagnant, the situation should not worsen further, and a return to high single digit organic growth is possible in 2014-15.”

The VIP income growth is one of the key things we feel that has potential, in the face of demand growth recovery from China. This, coupled with the seasonal factors mentioned above are all spelling good notes for GS’ ammunition for its turnover.

However, PhillipCapital remains “Neutral” on GS, with three main business risks indicated:

1) Cyclical and seasonal factors result in wide variations in gross gaming volume;
2) Luck factor (an unpredictable variable) has a major impact on win rate, which will in turn affect gaming revenue;
3) Regulatory risks are significant.

We agree that the regulatory risks continue to be business risks surrounding GS, but we also have to remember that this risk is to be borne by both the casinos in Singapore, and not just GS alone.

Albeit the seasonal variations in gross gaming volume, it is difficult to ignore the potential run that can be seen in the ongoing and upcoming seasonal boosters. Perhaps it will not be constant, but exceptionally high gaming volume and turnover during seasonal peaks should buffer in nicely to offset any seasonal lulls.

GS’ chairman Lim Kok Thay also pointed out that the domestic market is the one that gives you the adrenaline rush when it first opens, but it will be sustained by inflow from the foreign players instead.

Summing it up, it’s important to also note that as GS opens more facilities, it will not just be a gaming resort, but which will also be able to call for the inclusion of families to be involved cohesively instead. This, should also help GS in their gaming revenue in the long run.