Genting Singapore: Posts S$31.9m loss for 1Q09

Muted 1Q09 results. Genting Singapore (Genting) posted a weak set of 1Q09 results last evening, with revenue dropping 37.6% YoY to S$105.4m; management attributed the drop to several factors, key among which would be poor luck factor (accounted for 20% of the decline), weaker pound against the SGD (16-17%) and reduced patronage volume (2%). Although gross profit improved by 2.9% to S$7.7m, EBITDA tumbled 80.7% to S$2.1m, as it had to incur higher pre-operating expenses of S$7.1m (versus none in 1Q08) for Resorts World @ Sentosa (RWS). And also because of fair value adjustments of -S$8.0m, net profit slipped into the red to the tune of S$31.9m, versus a gain of S$6.0m in 1Q08 (includes fair value adjustments of +S$18.8m). However, if we strip out these adjustments as well as forex impact, Genting would have posted a smaller loss of S$23.9m, although still wider than the net loss of S$12.7m in 1Q08.

Outlook for UK operations still uncertain. However, outlook for its UK operations remains uncertain, hampered by both the economic slump there as well as several new measures by the UK government to raise gaming taxes. These measures include a higher license fee for gaming machines and higher tax on the gains from poker games which ranges from 15-50% depending on the magnitude of the win. Management expects these measures to have a marginal £1.2m impact on the profitability of its UK operations, which should be mitigated by its ongoing cost measures.

RWS on track for 1Q10 launch. As for Singapore, RWS is still targeting for a soft launch in 1Q10, and will try for the early part of 2010; construction is progressing well and it has awarded S$4.67b of the S$6.59b project costs. It also drew down another S$425.0m in 1Q09, bringing the total to S$1.025b. By the opening, its capex is projected to be less than S$6.0b, of which S$2.0b is equity funded and the rest by bank borrowing. On the licensing front, we understand that Genting has already received the draft application and can start the application proper in 3Q09.

Bets placed too early? As revenue and net loss met 18% and 24% of our FY09 estimates, we are leaving our numbers unchanged. But we are raising our fair value from S$0.33 to S$0.45 to reflect the improving risk aversion in the overall market. However the recent sharp rally may have run ahead of fundamentals. As such, we maintain our SELL rating.

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