Saturday, November 12, 2011

Genting--Bad debt provisions in Q3

Is Genting being prudent (aka conservative)  or aggressive ?

The following article from BT  by Grace Leong on Nov22, quoting MacQuarie analysts, seems to suggest that Genting has been overly aggressive in credit extensions to VIPs.


Genting Singapore shares fell as much as 8.3 per cent in volatile trading yesterday, before closing at $1.595, down 5.34 per cent or nine cents.

In what Genting Singapore called a prudent move in the face of a slowing global economy and tightening credit conditions in China, the company raised its bad debt provisions to $56.9 million for the third quarter, up from $23.5 million a year ago.

That equates to 8.5 per cent of its gaming revenue, higher than the average of 3 per cent over the past six quarters, Citigroup said yesterday.

'However, this is in contrast to Marina Bay Sands, which has not shown higher provisioning, so we wonder if Genting Singapore's decision was driven by its aggressive credit extension that was seen in the first half of the year,' Macquarie Equities Research analysts Gary Pinge, Elaine Lai and Somesh Kumar Agarwal said in a report yesterday.

Also pressuring Genting Singapore's stock are concerns that its flagship casino, Resorts World Sentosa (RWS), continued to cede market share in both VIP and mass gaming segments to rival MBS.

'Genting Singapore lost significant gaming market share in 3Q11 and also did not see any ramp-up in non-gaming,' the Macquarie report said. 'We believe the VIP market share loss is more driven by lack of a competitive product relative to MBS.'

'We find it interesting that notwithstanding Genting Singapore adding more table game capacity, slots and electronic table games (ETGs) (quarter-on-quarter), mass market failed to ramp and showed 2 per cent QoQ growth. This essentially means that table, slot and ETG yields all declined QoQ - at a time when there was available hotel room capacity,' the Macquarie report said.

The scheduled opening of Bayfront MRT at MBS may also shift some mass-market players away from RWS, it said.

But it isn't all doom and gloom.

Some analysts say downside was capped by Genting Singapore's top management's renewed optimism on hopes that some of the junket licensing applications it endorsed may be approved in the next few months.

Also helping is the planned opening of the 200-luxury room Equarius hotel and 20-plus Beach Villas by year-end, which would triple RWS's VIP hotel offering to nearly 330 and help the casino claw back some VIP market share.

Morgan Stanley said RWS could see growth in its VIP roll as it ramps up the number of slot machines to 1,744 by year-end from its current 1,315.

With the resort's completion next year, RWS is expected to see a boost in operational performance in 2013.

'We believe Genting Singapore remains well-positioned to secure new gaming opportunities when they arise. Globally, governments are facing fiscal pressure and casinos remain an efficient policy tool for raising taxation revenues. We see Korea and Japan as key potential markets,' said HSBC analyst Sean Monaghan.

Aaron Fischer of CLSA Asia-Pacific Markets noted that Genting Singapore was 'especially optimistic on Japan and believes it could legalise gaming within the next 12 months'.
'This would be another major catalyst to the shares as we believe Genting Singapore, Las Vegas Sands and Wynn are the three front-runners for one of the two licences (which would probably be operated under a joint venture with a Japanese company,' he said.


My Thots....

Both GS and LVS, in Sg,  operates under the same regime i.e. w/o junkets to insure against the receivables risk and quite the same in terms of patronage profiles.
LVS in Macau & elsewhere do operate with the junket scheme.

Take note, the  analysts from MacQ are arguing that LVS is taking away VIP market share.
Now who do the junkets serve ------ VIPs,  right?
So if LVS has a higher share of the VIP mkt and w/o junkets to insure against bad debt collections  of receivables, then why are their provisioning lower?
So is LVS more aggressive or is GS more conservative?

Take Ur pick.
U can read it as GS is conservative by making a larger provisioning
Do U say LVS is conservative and GS is aggressive in over providing credit, as MacQ is implying ?

A "spin" has been put on the conservative stance for provisioning, to make GS look aggressive!!

IMHO, it is more conservative to over provision and write-back, later, if the receivables are recovered eventually.

No comments:

"Wisdom is purified by virtue and virtue is purified by wisdom. Where one is, so is the other."