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Friday, 13 January 2017

Genting Singapore: a possible rekindled flame?

06:00 Posted by szcszc No comments
Back in December 2016, the Japanese government has passed a law that allows casino gambling in integrated resorts which includes hotels and entertainment lodges. Despite the long-standing proposal of this bill, Mr Shinzo Abe was determined to be the one to carry it through and this has certainly hit his public popularity whereby it was stated by a poll from Kyodo news agency, public approval rating fell from 60.7% in November to 54.8% in December for Mr Abe's government. In my opinion, this is could be a potential case of "doing what is right for the nation instead of what is popular", as we all recall the familiar phrase taught in Social Studies back in Secondary School. It is definitely reasonable to deduce that the Japanese government is trying to replicate the success of the local integrated resorts where income is increased while the negative social impacts are being controlled. This can be seen whereby gambling addiction prevention legislation could be submitted this year, similar to the processes that we had in Singapore when casinos are approved to be included in the 2 integrated resorts.

As we all know, Japan has been suffering from many years of stagnation and poor economic performance. Even with the implementation of Abenomics, results have been disappointing. Hence, I believe Japan will need all kinds of boosts that it is capable for generating to propel it away from its current plight. One of them is the Casino Bill. 

Japan is certainly not new to the gambling industry where "Pachinko" (pinball parlours) can be prominently found in cities. I can personally vouch that when I was touring in Tokyo! With this bill, Japan would likely see an increase in tourism, earnings from the gambling taxes and foreign investments on tourist facilities to capitalise on this opportunity. This could then be used as additional coffer to supplement its existing streams of income. 

With these in mind, it is natural to turn our area of focus to integrated resorts developers which includes Genting Singapore, that is conveniently listed on the Singapore Exchange. It can also be seen that the share price of Genting has been slowly creeping upwards since the announcement. The question though is: How likely is Genting Singapore able to come out on top of its competitors and secure the license?

Balance Sheet Strength
A logical requirement of building an integrated resort is money. By that, I mean, loads and loads of money. Looking at Genting Singapore's balance sheet, it is comfortable to say that it has a decent hoard of cash and cash equivalents, totaling of $5B, considering that it has a market capitalisation of $11B. This would likely give them a comfortable financial padding if they do undertake the project. A comparison to a competitor, Las Vegas Sands, which has an estimated of $3B in cash and cash equivalents, this does put Genting Singapore in a better position.

Experience Level
However, the mention of Singapore being a role model for the Japanese Government will not give Genting Singapore more advantages compared to Las Vegas Sands as both have Integrated Resorts in Singapore and are equally experienced developers. In fact, Genting's declining market share is instead proving to be more of a worry. 

Likelihood of securing the project
Given that there are multiple potential sites that integrated resorts could be implemented, this does help Genting in terms of increasing its chances of securing one project. 

Future Growth Opportunity
Nonetheless, with more openings of integrated resorts, there are also more competitors within the country fighting for both local and foreign market shares.

The upcoming restraining gambling legislation on locals may also limit the potential of the local market. This is also observed as a crippling factor in Singapore and there is not much steps or actions that the developers can do to sidestep its impact.

One comforting factor is that the Japan integrated resorts are projected to overtake Singapore, making it the second largest in global gaming market. Hence the pie could be big enough to accommodate 2 to 3 players.

Conclusion
Genting Singapore is definitely within the leagues of being a serious player in the Japanese market given its financial strength and relative reputation standing. Its future earnings potential could be limited and would likely follow the muted performance in medium term of 5 years after the novelty effects wear off. It will still give better returns on Genting's current large position of cash. The first few good years would also give its investors a run reflected in its share price, though I doubt it will last. This is of course subjected to whether Genting is able to obtain the casino license.

All in all, Genting Singapore is still a good option for investment due to its large cash pool but risks follow in terms of how the management will utilise it if it fails to obtain the license.




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