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Genting’s FY 2018 earnings growth backed by VIP gaming segment - 2018 Annual Report

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Genting Singapore Limited (Genting)

Source: Genting FY 2018 Annual Report

Genting is in the development, management and operation of integrated resort destinations, including gaming, hospitality, MICE, leisure and entertainment. Genting owns Resorts World Sentosa Singapore, and is one of the largest companies in Singapore by market capitalization.

FY 2018 Financial Highlights:

Source: Genting FY 2018 Annual Report

  • Genting’s FY 2018 revenue grew 6% year-on-year to SGD 2.54 billion.
  • Both non-gaming and gaming revenues increased, by 7% and 6% respectively.
  • Operating profits also rose 9% year-on-year to reach SGD 975.2 million.
  • As a result, net profit attributable to shareholder for FY 2018 went up by 12% to SGD 755.3 million.
  • Earnings per share followed suit and jumped 25% year-on-year to 6.27 cents for the full year.

Performance Drivers:

Source: Genting FY 2018 Annual Report

Genting experienced growth in both its gaming and non-gaming segments for FY 2018. Nevertheless, the company maintains a cautious outlook due to the rising economic uncertainties and increased regional competition.

Performance Drivers (Positive Factors)

  • Gaming Segment – VIP Business

The Gaming segment’s VIP business was the main driver behind Genting’s FY 2018 earnings growth. The company’s VIP rolling chip volumes in 2018 performed better than expected at USD 25.3 billion, which represented a 24% year-on-year increase.

The rise in VIP business was attributed to customers from Southeast Asia, on the back of Genting’s ongoing marketing efforts towards the regional premium mass segment. There was also an increase in the Chinese segment, although competition for this market continues to be strong.

Other factors contributing to the growth in FY 2018 earnings included selective credit extension by Genting, as well as the introduction of new products and services. The electronic gaming segment also reported positive results for the year.

Nevertheless, Genting is maintaining a cautious outlook for the higher end premium mass and VIP segments – owing to the rising number of casino openings in the region, a tightening of cross-border monetary movements, as well as current uncertainties in the wider economic environment.

  • Non-gaming Segment – Attractions

Genting’s attractions business put in a good performance for FY 2018. Primary attractions at Resorts World Sentosa Singapore (Universal Studios Singapore, S.E.A. Aquarium, Adventure Cove Waterpark and The Maritime Experiential Museum) welcomed over 7.5 million visitors during the year. There was also an increase in average visitor spend across all offerings for FY 2018, while average daily visitation surpassed 21,000.

  • Non-gaming Segment – Hotels

The occupancy rate for the hotels at Resorts World Sentosa Singapore and Genting Hotel Jurong exceeded 94% for FY 2018 – which continues to be over the industry average.

Performance Drivers (Negative Factors)

  • Gaming Segment – Mass Business (Q4 2018)

Although Genting’s FY 2018 gross gaming revenue (GGR) remained stable, there was an approximate 7-8% drop when comparing its Q4 2018 GGR to the same quarter a year ago. This was caused by a slight dip in the company’s Q4 2018 market share for the mass business. Analysts attributed the drop to weakness in regional currencies over the quarter, as well as competition from other regional casinos.

  • Higher Overheads and Depreciation (Q4 2018)

Although Genting’s FY 2018 adjusted EBITDA grew 7% year-on-year to SGD 1,230 million, the company’s Q4 2018 adjusted EBITDA figures underperformed analysts’ estimates. This was largely due to higher overheads – as administrative and selling expenses increased 33% year-on-year. Part of this increase was related to costs associated with bidding for a Japanese integrated resort. Further, Genting experienced higher depreciation in Q4 2018, owing to management’s decision to reduce the useful life of some of its assets.

  • Jump in Bad Debts

Genting’s bad debts went up from SGD 48 million in FY 2017 to SGD 58 million in FY 2018. Even more worrying was the jump in the company’s Q4 2018 bad debts to SGD 36 million – compared to the SGD 4.7 million in Q4 2017 and SGD 13 million in Q3 2018. Nevertheless, Genting assured that impairment on trade receivables can be volatile when comparing quarter to quarter. In addition, its FY 2018 bad debts was still a substantial decline from the SGD 235 million recorded in FY 2016.

Source: Genting Annual Report 2018; The Business Times; DBS Group Research