Uncertainties - GentingSP (Falling Rev, Profit and High Bad Debts) !

The developer and operator of the RWS gaming resort in Singapore.

Its flagship RWS will lost VIP volume share to its only rival in Singapore, MBS.

This is on the back of the dismal performance in the 4Q2014 when RWS recorded levels of bad debts in its VIP gambling operations. Genting SP reported a 30% year on year decline in net profit in the three months to Dec 31 2014.

However Genting SP did guide for lower RWS VIP volume as it is extending less credit to improve bad debt management.

RWS had recorded SGD82 million bad debts in 4Q. So it will cede VIP volume share to MBS in 1QFY2015.

China are said to be backbone of the gaming industry in this region. Chinese VIP gamblers account for about half of all Singapore gaming revenue.

Hence casinos in the region have seen a sharp drop in their gaming volume with the economic slowdown in China and the clampdown on corruption by its government. Chinese gamblers as a result have a hard time adjusting to these difficult times resulting in an increase in bad debts experienced by the casinos.

In the case of Genting SP, the problem is compounded when high rollers, or premium players as the company calls them, contribute a large portion of the company’s revenue, where many of them are actually allowed to gamble in its casino using credit that is extended by the company.

And if these premium players incur gambling losses, they are allowed to make good their losses by paying the company at a later date, thus creating numerous account receivables for the company.

Genting SP has more than SGD1.1 billion worth of receivables that were due by Dec 31 2014.

Falling revenue, profit, share price and high bad debts are daunting problems faced by GentingSP.

Tan Sri Lim Kok Thay had assured shareholders that not all bad debts will eventually written off as some of it can still be recovered.

For FY2014 ended 31 the company had provided for USD262 million in bad debts. This amount represents 13.3% of its VIP revenue in the same year.

RWS will also be more stringent when extending credit terms to high rollers.

RWS had secured syndicated senior secured credit facilities of SGD2.27 billion which will be used to refinance Resorts World at Sentosa’s existing facilities of SGD4.18 billion obtained in 2011.

The fund raising is aligned with expansion strategy as it seeks to diversify its portfolio of assets away from the Sentosa integrated resort with a planned 550 room hotel in the Jurong Lake district and additional integrated resort in Jeju in South Korea.

In May 2014 Genting SP set up subsidiaries in Japan. Japan is currently mulling legalizing casino gaming. These projects will require large pool of funds in order for the company to turn its ambitious into reality. If the company is raising capital right now (May 2015), it can only mean the firm’s expansion plans are still very much intact.

It is in net cash position with a total debt to equity of 17.6%. As of Dec 31 2014 it has total borrowings of SGD1.7 billion of which SGD518.7 million is due within a year.

Against these borrowings levels are Genting SP’s cash and cash equivalents of SGD3.69 billion excluding the company’s SGD1.3 billion worth of available for sale financial assets. Moreover Genting SP has been able to generate positive free cash flow amounting to an average SGD1.13 billion per year since 2010.