GGRAsia – GEN Singapore ups Jeju bet, some gloom on big picture

GEN Singapore ups Jeju bet, some gloom on big picture

Jun 21, 2016 Newsdesk Latest News, Singapore, Top of the deck

Genting Singapore Plc, operator of the Resorts World Sentosa casino resort in Singapore, says it is increasing the cash contribution in its equity investment in a South Korea casino project.

In a filing to the Singapore Stock Exchange on Monday, the firm said that Happy Bay Pte Ltd, an indirect wholly-owned subsidiary, had subscribed for an additional 15 million new ordinary shares at KRW10,000 (US$8.65) each, in Landing Jeju Development Co Ltd “for a total subscription amount of KRW150 billion (equivalent to approximately SGD176.7 million)”.

It added that the respective equity interests of Happy Bay and Landing International Development Ltd – the latter a Hong Kong-listed real estate firm from mainland China – in the Jeju project would “remain unchanged” at 50 percent each.

At the time this story went online, Landing International Development had not made any filing to the Hong Kong bourse indicating that it had made a pro rata increase in its cash contribution to the equity investment in the Jeju scheme.

In its 2015 results published in March, Landing International Development said the Jeju project is being referred to as the “Myths and History Park” and is due to open progressively from 2017. The entire development is expected to be completed by 2019, added the document.

The same day that Genting Singapore announced it was upping the amount of cash in its equity investment in the Jeju scheme, brokerage Sanford C. Bernstein Ltd in Hong Kong, said it was downgrading Genting Singapore’s stock to “market perform” from “outperform”, with a target price of SGD0.80 (US$0.6), from SGD0.90 previously.

“Our prior investment thesis was partly based on the company returning excess cash to investors (through dividend or share buy-backs) or investing cash in high return projects (e.g. in Japan),” wrote analysts Vitaly Umansky, Simon Zhang and Clifford Kurz.

“However, we now see very low likelihood for the company to deliver on these expectations in the foreseeable future.”

Profit tumbled

Genting Singapore in May reported a first quarter net profit attributable to shareholders amounting to SGD10.8 million, down by 83 percent from the prior-year period. Investment analysts said its results for the period were negatively affected by an increase in impairment losses on trade receivables – which includes bad credit extended to VIP players.

Earlier this month Resorts World Sentosa confirmed in an email to GGRAsia that it was in the process of reviewing its “headcount” at the resort. The news followed a Singapore media report that Resorts World Sentosa was “letting go” of 400 workers.

Sanford Bernstein said in its Monday note on Genting Singapore: “We have learned, and management has confirmed to us, that David Sisk, who was the chief operating officer of Resorts World Sentosa, had left the company in the past few months. Sisk had been responsible for the day-to-day operations of Resorts World Sentosa. He had been with Resorts World Sentosa since September 2014 and we believe he had been important in repositioning Resorts World Sentosa towards mass [market customers] and altering the credit strategy in VIP. As of now, the Resorts World Sentosa COO role has not been filled.”

The brokerage said it was also “concerned” about the company’s potential investment in what Sanford Bernstein described as a “low return” project, namely Resorts World Las Vegas, that has been proposed by the Malaysian parent group of Genting Singapore.

“Aside from capital allocation, the unwinding of non-performing gaming credit [at Resorts World Sentosa] has taken longer than expected, and this issue may not be fully resolved until the end of 2016, putting pressure on profitability and cash flows,” stated the brokerage.

“Meanwhile, tightening credit to high rollers further suppresses VIP revenue, and Genting faces strong competition from Marina Bay Sands in the mass segment,” added Sanford Bernstein, referring latterly to Singapore’s other casino resort, developed and operated by Las Vegas Sands Corp.