Analysts are bearish about Genting Singapore’s prospects despite the stock buyback program, which helps strengthen the share price.
Genting gained authority to buy back as much as 1.22 billion shares, or 10% of its outstanding stock, in April. The company started the program on Nov. 13, a day after the shares sank to a four-year low. As of Nov 26, the company spent S$63.8 million ($49 million) buying back 58.6 million shares.
Bloomberg reported that the difference between Genting’s share price and analysts’ forecasts for the 12-month average price target decreased to S$1.24 from S$1.55 a year ago, compared to S$1.155 closing price on Wednesday. At least nine analysts of the 21 covering the stock expect a 50% decrease in quarterly profit.
According to CLSA Asia Pacific Markets, a 12% rally in the stock since the start of a share buyback Nov. 13 through yesterday will be short-lived.
“It’s good that Genting is returning cash to shareholders but the scale of the buyback is too small to have a meaningful impact,” said CLSA Hong Kong analyst Richard Huang. “Genting’s valuation isn’t that attractive compared to the Macau casinos. The company won’t have very exciting growth for the next few years because casino revenue in Singapore isn’t growing and the new casino projects in South Korea and Japan haven’t started.”
The company also reported a 43% drop in Q3 net profit but Maybank Kim Eng Holdings Ltd. believes “growth will be stable in the coming quarters,” supported by increasing mass-gaming market revenue and the opening of Genting’s new hotel in the western Singapore town of Jurong.
The 550-room hotel will open in the second quarter of 2015. The 1,500 hotel rooms run by Genting’s Resorts World Sentosa, which also operates the convention center and the Universal Studios theme park, had a 95% occupancy rate in the third quarter.
Alan Richardson, an investment manager at Samsung Asset Management Co. in Hong Kong, said he would “take a more wait-and-see approach on Genting.” “For the foreseeable future, the profitability of the business will still deteriorate. It could take a while before fundamentals actually start to turn.”
The company posted a net profit of $127.1 million ($98.5 million) in Q3. Revenue declined 17% to $644.8 million, while adjusted EBITDA was S$253.9 million, affected by failing VIP sector due to a low win percentage.