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Genting stock takes a hit as euphoria fizzles outBy ARTHUR SIM20 February 2010Genting Singapore shares have been taking a beating, falling almost 30 per cent from its peak of about $1.30 per share a month ago to 94 cents yesterday.While the euphoria surrounding Genting’s Resorts World Sentosa (RWS) casino was not expected to last beyond the actual opening, some note that the initial public response to the casino has not helped either.Citigroup gaming analysts said that it was worrying that RWS attracted only 86,000 visitors in its first four days of operations.‘In our view, this is a weak opening considering Melco Crown Entertainment’s City of Dreams (in Macau) attracted about 40,000 visitors on its first day. The current run rate is 37 per cent below our 2011 visitor expectation and there remains significant downside risk to our Singapore estimates,’ said Citigroup in a recent report.Genting Singapore’s share price peaked on Jan 19, the day before the first phase of RWS opened with four hotels.What ensued was several weeks of ‘will it or won’t it’ reports on when the casino would actually open, followed by inevitable news fatigue with the announcement of the casino opening date doing little for the stock.Perhaps what was more disappointing for the gamblers who turned up when the casino finally opened was that about a third of the gaming tables were not in operation, so many could not even place bets.Vincent Khoo, an analyst with UOB KayHian in Malaysia, also noted that there was some disappointment in the lack of participation from Singaporeans and permanent residents.‘The number of tables and slots were a lot fewer than expected, as Genting is gradually ramping up,’ he added.Interestingly, Minister Mentor Lee Kuan Yew mentioned that the casino had ‘earned’ $3.5 million on the first day of operations and $3.7 million on the second day. And going by earlier analyst projections for annual gaming revenue, these figures are also on the low side.Bank of America Merrill Lynch (BOAML) analyst Melvyn Boey says that it is normal to ‘stagger’ the number of operational tables at a new casino.He attributes the fall in the share price to other factors, including the conversion of $450 million worth of convertible bonds at 95 cents each to Genting shares last week.Mr. Boey also believes that a drop in the share price following the casino opening is to be expected. What will be important to watch now is RWS’s ‘operational performance’, he said.BOAML nevertheless maintains its underweight call on the stock for valuation reasons.Analysts at Nomura continue to believe that the potential size of the Singapore casino market is ‘overstated’.‘Given the high expectations and the hype built up over the past few months, Genting Singapore will have to constantly beat expectations to justify the lofty valuations, in our view,’ Nomura adds.As it is, Nomura says that the stock is already trading at over 20 times the FY11 forecast EV/Ebitda, making it the most expensive listed gaming company in the region.Nomura has one of the lowest gaming revenue estimates for Genting in 2010 of $729 million versus market estimates of as high as $3.5 billion.Still, according to consensus calls polled by Bloomberg, how Genting performs going forward is anyone’s guess. Bloomberg revealed that there are eight buy calls from research firms, and an equal number of sell calls with three neutral ratings.Earnings estimates for 2010 also ranged widely from a loss of $10 million to a profit of over $500 million.Separately, Genting reported a net loss of $277.57 million for the year ended Dec 31, 2009 compared to a net loss of $124.8 million a year ago. Revenue for the period came to $491.22 million, down 22 per cent from $630.67 million a year ago.Genting attributed this to its UK gaming operations.In Singapore, it noted that pre-operating expenses at RWS of $103.4 million were incurred for recruitment, training, sales and marketing programmes.
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