Wednesday, February 25, 2015

Genting Singapore, Drop and Roll!

I don't know about you, but the SEA Aquarium is actually one of my most favourite places in Singapore. Truth be told, I've only been there once, but it was awesome. There's something about having a huge fish tank full of fish that is just so tranquil and relaxing. I suppose it is an experience opposite of music and sound. When staring at the fish tank, all you feel is peace and quiet.

(Credit: Ria Miranda via Google Images)

But the awesomesauce aquarium aside, Genting has one fugly chart.


As many of you know, I LOVE fugly charts. However, I think investing in these kind of counters require more than just an ugly chart to go in. No guts no glory, no brains same story. You need to know what you're dealing with. The biggest risk is that it ends up being a value trap.

The recent drop down is due to the horrible performance of the latest quarter, showing a 30% drop in net profit when compared to the same period last year. That feels like quite a steep drop, but comparing full year figures, net profit only dropped 10% actually. However, earnings are dropping and that is not a typically fundamentally good sign.

In terms of balance sheet, Genting is actually pretty nice. Debt/Equity ratio is a low 16.3%. Cash as % of NAV is a pretty decent 37.8%. Overall cash flow and operating cash flow is positive, with good management of their financing activities in my opinion.

As fugly as their charts are, their valuations hasn't hit the levels I would like. P/NAV is 1.6, P/E is 23 and EV/EBITDA is 9 if I did my math correct. To me, these are definitely not bargain levels yet.

If I'm not wrong, we will know if there is a 3rd IR in 2017. From my understanding, a third IR means that the same pie just gets split between the participants which is bad. If there isn't demand for a third IR, it means that this industry is estimated likely not to be too stellar in the near future, which is bad too, but less so than the former I suppose. Either way, it seems like a damned if you do, damned if you don't sort of situation that investors are going to see.

On top of this headwind, Genting has been doing their buyback but it doesn't seem to be holding the floor up very well. What is there to prop up this stock?

Personally, I like the fear trade that this counter could bring, and I expect it to continue heading south until earnings start to stabilize. If earnings start to stabilize and valuations are much lower, I would definitely consider this company then. Now, at this price with these fundamentals? No.

2 comments:

  1. Interesting, where did you read about a possible third IR? If there is one, I'd prefer it to be different from the ones we already have -- maybe something more upscale and luxurious, or something entirely novel. I don't think another casino would make sense, since the local market already seems saturated.

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    Replies
    1. Hi J,

      In 2017 the exclusive rights for the 2 current casino operators expire, which means it would be possible for others to enter the market. A while ago I read that Wynn wants to get into the Singapore market. If they no longer have interest, is it a sign that they think the outlook for a casino based in Singapore is bleak?

      I also feel that the market is saturated, so if another casino operator comes, its just to fight for a share of the same sized pie. Since both outcomes can have a bad spin, it feels like there's more possible downside ahead in the future!

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