What happened?

If you’ve been following the Singapore market closely, you’d probably have noticed the sharp movements in Genting Singapore’s share price in recent days.

This came after Bloomberg reported on 15 July (Friday) that Genting Singapore saw takeover interest from US entertainment company MGM Resorts.

This led to a 9.3% spike in Genting Singapore’s share price before trading was halted.

Genting Singapore subsequently shared that its controlling shareholder, Genting Berhad, received an unsolicited approach for its shares in the company. However, the approach has not been pursued.

Genting Singapore is also not aware of any ongoing discussions concerning any potential transaction.

Following the announcement, Genting Singapore’s share price fell back slightly but remains above where it was prior to when the Bloomberg report came out.

For those who are not familiar with Genting Singapore, the company owns Resorts World Sentosa. Yes, the integrated resort which houses one of the two casinos in Singapore and also Universal Studios Singapore.

Let’s take a look at why Genting Singapore might be drawing interest.

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Description automatically generated — Source: Google Finance

Why Genting Singapore might be drawing interest

#1 – Tourist arrivals in Singapore recovering

If you have not noticed, tourists are returning to Singapore following our gradual re-opening.

In 1H22, 1.5 million tourists arrived in Singapore, which was close to 12 times the same period in 2021.

More encouragingly, the Singapore Tourism Board expects total arrivals in Singapore to reach 4 to 6 million this year.

This means that the number of tourists could reach up to 4.5 million in 2H22!

Even then, this is a far cry from the 19 million tourists that arrived in Singapore prior to the Covid outbreak in 2019.

Compare this to Macau – which continues to be impacted by lockdowns to control the spread of Covid-19.

In fact, the government recently announced that casinos in the world’s largest gambling hub would remain shut till 22 July.

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Description automatically generated — Source: STB

#2 – Strong cash position

In a world of rising interest rates and everyone is concerned about interest repayment, the adage that “cash is king” can’t be more true.

Genting Singapore happens to be one of the companies that is sitting on quite abit of cash.

As of 31 December 2021, it has cash in excess of its debt of more than S$3 billion.

That amounts to close to S$0.25 per share, compared to its share price of S$0.79 (as of market close on 18 July)

Why does it have such a strong cash position?

The company was preparing to bid for a highly coveted license to operate a casino in Japan, and was one of the two contenders in the city of Yokohama.

The plans were shelved in September after Yokohama’s new mayor said that they would not pursue the casino initiative.

Genting Singapore has since wind up its Japan units, but its huge cash pile still remains.

#3 – Planned expansion of Resorts World Sentosa

The loss of the Japan casino opportunity may not mean the end of Genting Singapore’s growth ambitions.

In 2019, Genting Singapore received an extension of its exclusive gaming license in Singapore until 2030. It remains one of the only two license holders in Singapore, the other being Las Vegas Sands (LVS).

With the extension, Genting Singapore also announced a S$4.5 billion redevelopment plan at Resorts World Sentosa.

While the Covid-19 pandemic has affected these plans, there are some signs the expansion might be restarting.

Earlier this year, Genting Singapore announced that its planned expansion of Resorts World Sentosa (RWS) will start in 2Q22 with an initial S$400 million investment.

The first phase of the investment involves an expansion of Universal Studios Singapore and the SEA Aquarium. Also, three hotels and the convention centre would be refurbished in phases.

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Description automatically generated — Source: Genting Singapore

What should we care?

Tourism related stocks have drawn significant interest by investors with the easing of border restrictions.

This might explain why hospitality REITs in Singapore have done better than REITs in other segments in the first half of this year, with a total return of 17%.

However, should we be buying Genting Singapore just at the back of this news?

Analysts at Nomura have commented that Genting Berhad is unlikely to selling its stake in Genting Singapore due to its strategic importance and position as the group’s most profitable asset.

Also, Genting Singapore has clarified that it is not aware of and not involved in any ongoing discussions on a potential transaction.

If anything, the rapid rise and fall of Genting’s share price is a timely reminder that we should always invest based on fundamentals rather than on speculation.

GENTING SINGAPORE LIMITED

Analysis

Consensus Share Price Target: SGD 1.145

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