While many industry observers have changed their approach on Genting Singapore after it hit jackpot in its Q2 earnings, Nomura Securities has stayed cautious and is sticking to its guns on the IR operator.
Now that more data on the casino sector has been made available, the analyst company has raised its target price of Genting Singapore to $1.01 from $0.72. However, the casino operator still maintained a “reduce” rating on the stock.
Nomura said that Genting may have reached its peak in the second quarter and profits are likely to drop in the third quarter before recovering in the fourth quarter. It added that Genting’s Q3 profits could be dampened by a combination of a possible increase in bad debts and lower net wins.
“Excluding abnormal and highly volatile wins attributed purely to the luck factor, GENS’ (Genting Singapore’s) normalised net win per day comes to roughly $7 million in 2Q10, likely down 20 per cent since MBS’ (Marina Bay Sand’s) opening,” said Mr. Choong Wai Kee, an analyst from Nomura Securities. “The lopsided market share split is likely to attract competition from MBS, and we expect margins to taper off from the exceptional levels of 2Q10.”
The good performance of its so-called VIP business was a key contributor in the better Q2 results of Genting.
However, the analyst firm considered this increase as a result of the company’s willingness to take the risk by granting players with credit. As such, its receivables jumped by around $221 million in Q2 to over $300 million.
“Given the greater risk involved, we believe (Genting’s) management is likely to take a more conservative approach to VIP business,” said Mr. Choong, adding that the segment’s performance could wane down this quarter.