Genting Singapore Limited (SGX: G13) is one of Singapore’s premier companies in the tourism industry.
The group is responsible for the development, management, and operation of some of Singapore’s most renowned tourist attractions and facilities.
These well-known places include Resorts World Sentosa (RWS), an award-winning integrated resort (IR), Universal Studios Singapore (USS), and the S.E.A Aquarium.
Apart from tourism investments, Genting Singapore also engages in a wide selection of dining, retail, and entertainment businesses.
With a portfolio featuring some of Singapore’s most popular holiday destinations, Genting Singapore boasts a market capitalisation of close to S$10 billion.
This ranks the company among the 30 blue-chip companies that constitute the Straits Times Index (^STI).
On a broader scale, Genting Singapore is a subsidiary of the Malaysian investment company, Genting Berhad (KLSE: 3182), with Genting Berhad owning 52.6% of GS’s total shares as of 29 February 2024.
Understanding Genting Singapore’s share price performance
Let us compare Genting Singapore’s share performance with the Straits Time Index.
Source: S&P Capital IQ
Despite outperforming the index at the start of 2024, Genting Singapore’s share prices quickly plummeted following a disappointing fourth quarter in 2023 (4Q 2023), announced in late February.
On a quarterly basis, net revenue slowed down by 6.2% quarter on quarter, while net profit dived by 45.2% quarter on quarter.
On a yearly basis, while the group’s revenue saw a year-on-year increase of 19.3% for 4Q 2023, net profit decreased by a gentler 1.1% year on year.
Genting Singapore cited a slowdown in the last quarter, attributed to the strong Singaporean dollar, which curtailed tourists’ spending power.
This issue was further compounded by the high cost of airfare and weak Chinese tourist numbers.
Following a disappointing earnings report, subsequent events further impacted Genting Singapore’s share price.
First, talks of a rival casino complex built across the causeway in Johor on 25 April 2024, covered by the Straits Times, sent share prices down by 2.1%.
While shares of the resort operator briefly rallied following an optimistic business update for the first quarter of 2024, which will be elaborated further, the strength of the rally quickly faded.
Secondly, Singapore’s tourism numbers have started to slow down after a robust first quarter, which were fuelled by a series of high-profile concerts such as Coldplay and Taylor Swift.
With the inclusion of Malaysia and Thailand in China’s visa-free travel policies, Singapore faces tighter competition for Chinese tourists, which was already a key concern highlighted previously.
Lastly, as outlined by analysts from Morgan Stanley (NYSE: MS), the recent serious oil spill in June could affect tourist numbers, as water activities on beaches have been temporarily halted until clean-up operations have concluded.
A cause for concern?
The slump in Genting Singapore’s share prices may certainly be a concern for investors; in these tumultuous times, the fundamentals of a business become increasingly important.
When we analysed GS’s 4Q 2023 financial earnings, most of the decline in net profit was because of a sudden increase in the recognition of impairment losses on trade receivables.
In 2023, impairment on trade receivables stood at S$124.1 million, a significant jump from the previous year’s S$29.7 million.
An unforeseen surge in bad debts is unlikely to happen often, reassuring investors that GS’s core business remains sound.
During the company’s 39th Annual Meeting in April, the company acknowledged the importance of granting credit as a driver of revenue and confirmed its ongoing efforts to recover further debt.
Looking at the results for the first half of 2024 (1H 2024), it is clear that Genting Singapore is still in its recovery phase.
During this period, Genting Singapore reported a net revenue of S$1.4 billion, an impressive 25.5% year on year jump.
Net profit fared even better, climbing by 29% to S$356.9 million.
However, despite these strong year-on-year gains, much of the growth was attributed to an exceptional 1Q 2024.
The second quarter of 2024 (2Q 2024) told a different story, with both revenue and net profit experiencing year on year declines.
Revenue decreased by 4.1% year on year, from S$595.9 million to S$571.3 million, while net profit fell by a larger 25.8% year on year, from S$147.5 million to S$109.5 million.
Luckily, Genting Singapore’s underperformance for Q2 was priced in, with Morgan Stanley analysts predicting Q2 to underdeliver due to lower visitations stemming from seasonality factors.
The temporary closure of Hard Rock Hotel for renovation and rebranding also explained the weaker performance.
Furthermore, plans for a casino in Johor Bahru did not materialise, with Malaysia’s Prime Minister affirming a no to a second casino in Malaysia, ensuring Genting Singapore’s market share in the gaming business remains protected.
Given these circumstances, it might seem that shares of Genting Singapore are currently trading at a discount.
Although tourist numbers have slowed down, they are expected to reach 15 to 16 million this year, an improvement from 2023’s figure of 13.6 million.
If Genting Singapore can capitalise on Singapore’s tourism recovery in 2024, it is likely that the company can continue to build on its performance from 1H 2024.
Medium and long-term prospects
Looking ahead, Genting Singapore has guided its investors on several fresh and exciting launches planned.
In the medium term, a Harry Potter exhibition at RWS is set to open this October, marking Asia’s first multi-sensory interactive art experience.
In addition to the Harry Potter exhibition, other big launches are planned in the second half of 2024 (2H 2024).
RWS will be rolling out three other global blockbuster intellectual properties partnerships, further enhancing its appeal as a premier tourist destination.
Mega Minions from “Despicable Me” will be debuting at USS, while SEA Aquarium will have an immersive experience based on Genshin Impact, a game with over 60 million monthly players .
Netflix’s (NASDAQ: NFLX) global hit series, “Sweet Home”, will appear in USS’s flagship Halloween event, Halloween Horror Night, too.
The year 2025 will see new tourist attractions, including an oceanarium and a central lifestyle connector, expected to have a soft opening in the first quarter of 2025 (1Q 2025).
Apart from those, Universal Studios Singapore aims to open Illumination’s Minion Land by early 2025, riding the current popularity from the recently released “Despicable Me 4”.
For the longer term, RWS 2.0 remains a key priority for the company, with construction commencing in late 2024.
With a budget of S$6.8 billion, RWS 2.0 includes an expansion featuring approximately 700 new rooms, biophilic architecture, and a new waterfront sculpture.
Construction of RWS 2.0’s two new luxury hotels will commence in the fourth quarter of 2024.
Although the budget may seem dauntingly high, the board has assured investors that this sum includes expenditures already made with the remainder to be invested over the next eight years.
Furthermore, the investment will be funded through internal resources and is not expected to have any material impact on the company’s earnings in the near term.
Lastly, Genting Singapore has demonstrated a strong commitment to sustainability efforts, successfully reducing its energy and water consumption by 29% and 47%, respectively, for 2023.
These efforts will aid the company in lowering operational expenses, thereby improving margins and profitability.
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Disclosure: Aw Kai Rui does not own any of the stocks mentioned in this article.
