Genting Singapore 2Q Net Profit Falls 32% to S$165.5 Million Ebitda Misses

-- Genting Singapore's second-quarter net profit slumps 32% to S$165.5 million

-- Second-quarter earnings before interest, tax, depreciation and amortization fell 10% to S$311 million

-- Group earnings affected by lower premium-gambler volumes, higher costs from expansion works

(Updates with details and background throughout.)

 
   By Chun Han Wong 
 

SINGAPORE--Genting Singapore PLC's (G13.SG) second-quarter net profit slumped 32% from a year earlier due mainly to lower premium-gambler volume and higher costs from ongoing expansion works at its integrated resort, the gaming company said Friday.

The operator of the Resorts World Sentosa casino resort in Singapore also reported lower-than-expected earnings before interest, tax, depreciation and amortization for the April-June period, reinforcing analysts' prognosis of slowing growth in the city-state's casino market and their views that the group may need to seek overseas opportunities for expansion.

" The global economy looks increasingly unfavorable...we will continue to see similar narrower Ebitda margins as in the current quarter," Genting Singapore said in a statement. But its strong cash position also " presents significant advantage for the group to capitalise on any suitable investment opportunities," it said.

Genting Singapore reported a net profit of 165.5 million Singapore dollars (US$132.8 million) for the three months ended June 30, compared with S$242.9 million.

Second-quarter Ebitda were S$311 million, down 10% from S$345.8 million a year ago. The result was also 17.4% lower than Ebitda of S$376.4 million in the first quarter.

A decline in casino business volumes especially in the premium-player segment weighed on earnings, the company said in a statement. The result also missed the S$373 million average Ebitda estimate of a Dow Jones Newswires poll of five analysts.

Resorts World Sentosa contributed S$313.1 million in Ebitda.

Group revenue for the period fell 3% to S$702.2 million, while gaming revenue from the casino--which opened in February 2010--fell 3.7% to S$562.3 million.

Genting Singapore, a unit of Malaysian gaming group Genting Bhd. (3182.KU), has raised about S$2.3 billion this year by issuing perpetual securities, and analysts believe it is seeking opportunities in markets like Mongolia, Japan and South Korea.

But its most aggressive moves in recent months have come in Australia, where Genting Singapore and sister company Genting Hong Kong Ltd. (S21.SG) have taken a combined 9.9% stake in Echo Entertainment Group Ltd.  (> >   Echo Entertainment Group Ltd), which owns casinos including The Star in Sydney.

The move sparked talk of a bidding war between Genting and Australian billionaire James Packer, who is also seeking to increase his holdings in Echo.

Best played as a growth stock

I believe  Genting HK  was a stock with high growth potential. Although it has beenincorporated since 1993,  I believe it is currently in the early stage of a new evolution into a leading land and sea-based gaming and entertainment enterprise. After all the interest in Genting Singapore, it is time Genting HK gets its fair share of attention.

Foray into existing and new gaming markets

Taking on the big boys in Macau

A more ambitious but not unachievable goal is entry into Macau, one of the

largest and most lucrative gaming markets in the world. While the Genting Group

does not yet have a meaningful presence in this territory, where SJM, Wynn

Macau, Galaxy and Sands China are among the well-entrenched casino players,

GenHK has long set eyes on a slice of the pie. To be sure, it is no novice to the

field, given the extensive casino operations of its sister companies such as

Genting Singapore.

As early as 2007, GenHK took the first step into Macau by acquiring a 75%

interest in Macau Land Investment Corporation (MLIC) together with Genting

International. The reason: MLIC owns a piece of land, about 8,100 sq m in area,

which could be developed. However, new developments in the territory are

currently stalled as the government has announced a cap on the number of

gaming tables at 5,500 until 2013 and will not accept any new casino application

during this period.

Appeal of Sri Lanka

GenHK’s subscription for shares in the Union Bank of Colombo in 2010, resulting

in a 5.96% stake, appears to confound investors. Collectively, the Genting Group

holds an effective 26% stake in the bank. Market talk suggested that the move

was a stepping stone for GenHK to be ready for an opening up of legislations in

Sri Lanka for a new gaming market. The island appeals chiefly because it has

recently emerged from a civil war and, based on our conversations with

management, is reminiscent of Malaysia when it was an emerging economy many

years ago.

Taiwan gaming market en route to liberalisation

Taiwan is another potential market where legislation to liberalise casino gaming

is underway. GenHK has been operating cruises to Taiwan and we believe it is

part of its efforts to position itself for land-based operations if market

liberalisation were to materialise.