AnalysisSGX

5 things I learned from the 2020 Genting Singapore AGM

COVID-19 has certainly hit Genting Singapore’s business hard. Earlier this month, the company expressed pessimism for its business outlook for the remaining of 2020 due to the pandemic. This is only expected — Genting Singapore’s principal activities lie in its integrated resorts including gaming, hospitality, MICE, and entertainment.

Further, the company derives almost all of its revenue from Resorts World Sentosa (RWS) in Singapore. Evidently, Genting Singapore’s services are not essential so the company has suspended ‘almost all’ operations since 7 April this year. RWS’s gaming venue is to remain shut even after the circuit breaker ends on 1 June this year.

RWS seemed poised for massive growth when early last year, RWS announced plans to invest S$4.5 billion to expand its gross floor area (GFA) by 50%. But COVID-19 has certainly put a dampener to those plans.

I tuned in to Genting Singapore’s virtual AGM to find out how it intends to navigate its way past such trying times. So here are five things I learned from the 2020 Genting Singapore AGM:

1. Genting Singapore posed a 2.3% and 3.2% fall in revenue and EBITDA year-on-year respectively for FY2019. The decrease in revenue was mainly due to the 3.5% fall in gaming revenue which comprised 65% of the company’s total revenue. Although reasons for the decrease were not elaborated upon at the AGM, the 2019 annual report attributed the fall in revenue and EBITDA to ‘2019 [being] a year of geopolitical volatilities which saw a slowdown of the global economy’.

2. COVID-19’s impact on Genting Singapore will be severe. International tourists play a significant role in driving RWS’s growth. Hence, RWS’s business will be hit hard as the global international passenger capacity has decreased significantly. The International Air Transport Association expects global passenger demand in 2021 to be 24% below 2019 levels. IATA does not expect 2019 global passenger demand levels to be exceeded until 2023.

Even though domestic travel is likely to recover faster than international travel, the short-term outlook for Singapore’s tourism scene is bleak since Singapore has a small domestic market. According to Genting Singapore COO Tan Hee Teck, Singapore’s tourism industry will only open up ‘gradually over the next 18 months’. Travel and tourism spending could potentially return to pre-crisis levels only from around the second half of 2021 to the beginning of 2022.

3. Genting Singapore will rely on government support and its existing cash reserves to get through the difficulties posed by COVID-19. The company is receiving government support including the Job Support Scheme, foreign workers levy rebate, property tax rebate, and deferment of corporate tax payment. The COO also mentioned how the company has maintained a net cash position since 2010, providing a financial resilience to withstand the weak operating performance caused by the pandemic.

I referenced Genting Singapore’s balance sheet to see if this was indeed the case. As of 31 December 2019, Genting Singapore had close to S$4 billion in cash and about S$261 million in short-term and long-term borrowings. The company also has a very healthy current ratio of 5.9. These reflect Genting Singapore’s excellent liquidity position. Although the company’s cash position will deplete because of high CAPEX for the expansion of RWS, it continues to stay in a net cash position. The COO reiterated that the company will be able to withstand ‘a severe but temporary cash burn’.

4. RWS’s expansion plans will be derailed due to COVID-19. In early 2019, RWS announced its ‘RWS 2.0’ expansion plans to invest S$4.5 billion to expand its current GFA by about 50%. Some of its plans include adding new themed environments at Universal Studios Singapore and tripling the size of its S.E.A Aquarium. The integrated resort (IR) will also have a new driverless transport system that provides last-mile connectivity between the mainland and Sentosa. I was interested to understand how COVID-19 will affect the otherwise very exciting plans RWS had intended to embark on.

The COO said that the construction of RWS 2.0 will run into construction schedule slippages due to global supply chain disruptions and labour shortages. Further, in adhering to the social distancing enhanced safety measures, some revisions to RWS 2.0’s designs are required before finalising its construction plans. RWS 2.0’s development will be staggered and is expected to be completed ‘five to six years’ from the commencement of construction works.

5. The COO provided an update on its expansion into Japan’s IR market. He said that Genting Singapore was withdrawing from the Osaka IR bid, focusing its efforts on bidding for the Yokohama IR licence instead. This was done after careful evaluation and having considered shareholders’ comments about the Osaka IR bid at the extraordinary general meeting in February this year.

Genting Singapore is currently engaged in the Request-for-Concept process for the Yokohama IR bid and will study the Request-for-Proposal when it’s issued by the Japanese government in the coming months. Genting Singapore is also currently in discussion with potential partners on the viability of a local consortium.

Liked our analysis of this AGM? Click here to view a complete list of AGMs we’ve attended »

Tags

Dean Goh

Dean has written and published investment articles since he was 18. Investing primarily in the U.S. and Chinese equity markets, he bases his investing decisions on good old Buffett-inspired fundamental analysis. He will be studying Philosophy and Economics at the London School of Economics.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Back to top button
Close