Saturday, February 20, 2010

Genting Singapore Over-owned Stock

Well I think investors should only be holding Genting Singapore right up before it opens. Now it is tumbling hard and fast to find its true fair value.

Singapore's future over the next five to 10 years is an "optimistic" one, said Minister Mentor Lee Kuan Yew, and the tourism sector will reflect that. Mr Lee said the two integrated resorts (IRs) have hired about 16,000 Singaporean workers, and tourist arrivals will shoot up. With a laugh, Mr Lee said: "They want to gamble. I don't understand why they want to lose. You surely will not win."

In reference to Resorts World Sentosa, which opened its casino on Sunday, Mr Lee said "the boss counted S$3.5 million" on the first day and S$3.7 million on the second day. Those are basically "gross gains" to the casino before taking off expenses. Those are decent figures but bear in mind these are euphoric days which will probably not be repeated. A better guide would be to take a 50% discount on that, I mean not everyday is a holiday and not everyday is the grand opening and most days people need to work at their day jobs. S$1.8 x 365 = S$657m, not bad but you also need to whack off expenses = a good figure but not enough to support the lofty share price above S$1.00. Most houses had estimated revenues of at least S$1.2bn-S$1.8bn. Even when you add in hotels and theme parks, its going to be a stretch.

Amidst concern over visitors, Genting Singapore Plc., owner of Singapore’s first casino, fell for the fourth day. At close, the stock lost 1.1% to 94 Singapore cents. It was down by 11% since Resorts World Sentosa opened its gambling facility on February 14.

The stock continued to be sold down and slid to a near six month. It is now down 28 per cent from a record high of $1.30 it hit on Dec 31. The counter has been traded heavily since its casino opened over the Chinese New Year holiday period, with 366 million shares changing hands on Friday following 369 million done on Thursday. This is more than triple the average daily volume of 105 million shares of Genting traded over the past six months. This shows that many big institutional funds are squaring off their positions. Its an over-owned stock. What that means is that those who really wanted to buy, would have owned the stock by now. Most were waiting for the euphoria hoping it would send the share price above S$1.50 and selling into the wave. Well the wave did not come, the buying dried up, its a one way trend now.

Genting Singapore has the worst performance on the benchmark Straits Times Index, as it has drooping 28%, this year, which has retreated 4.9%. Robin Goh, a Resorts World spokesman told that the casino, an S$6.6 billion venture, had 60,000 patrons in the first three days.

Resorts World said that is expecting to open the Theme Park in early March. According to the company website, four of the hotels have been released last month and two more have been scheduled to open after 2010.

According to Bloomberg consensus, Resort World Sentosa will be the world’s most profitable casino by 2011, implying Singapore will be generating twice the revenues of Malaysia.

The consensus forecasts seem aggressive, as they assume every single visitor to Singapore would visit either of the integrated resorts once and that every eligible Johorean would go twice to the resort. Furthermore, estimates counts on every Singaporean above 21 years of age visiting the casino five times a year and outspending the average visitor in Macau. Estimates have projected that each visitor to Resorts World Sentosa would spend US$100, which is 51% higher than that typically spent at Genting Malaysia’s casino (US$66) and higher than the average spend at the Venetian Macau (US$84). That does not include the additional S$100 entry levy that each Singaporean must pay when they enter the casino. According to consensus, Resorts World Sentosa and Marina Bay Sands in their first full year of operations will achieve combined gross gaming revenue equivalent to 50% of Las Vegas at about US$4bil. That is quite an optimistic view.

Yes, Malaysian will visit the two casinos in Singapore maybe once every two years, but that will be it. Resorts World Malaysia still has its market day trippers (72% of visitors) to remain loyal. Resorts World Sentosa’s hotel rates are 7 times those of Genting Highlands. A trip to Singapore or Sentosa nowadays is as expensive as a trip to Australia or Japan to Malaysians. Go figure. I think Genting Singapore will find a base around S$0.85.

NOTE: The above opinion is not an invitation to buy or sell. It serves as a blogging activity of my investing thoughts and ideas, this does not represent an investment advisory service as I charge no subscription or management fees (donations are welcomed though). The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

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