Genting Singapore (SGX: G13) shares are up 10.5% today. That’s the considered reaction following the results announcement. The thing is there’re two different strands of thought here. One is that it’s good that the business is thriving. That travel and leisure market is back in volume which is clearly good for a casino and resort operator. But there are also cost pressures and those are leading to a determined move upmarket - something that requires a considerable capital spend. That’s not so good - as the name of the overall system, capitalism, suggests it’s us out here who have to pay for those upgrades.
As we’ve noted before about Genting Singapore: “The G13 share price rise comes on the back of the first half results which show a 68% rise in profits. As the market has been thinking for some time - but then lost faith in - a tourism business should benefit from the return of tourism. For us in the Western Hemisphere we’ve got to recall that lockdowns were on a different timescale out East. So the effects on tourism reliant businesses were shifted.” If the tourists are back and spending then results should be good, obviously.
OK, so that was the last quarter’s results. We also gained further insight in October, when Marina Bay Sands reported: “Genting Singapore (SGX: G13) results are due in a few weeks. There’s a run up in G13 shares before that. The basis of this is that the shares of a major rival, Marina Bay Sands, have been doing well as their recent results show: “GENTING Singapore is expected to echo its peer Marina Bay Sands’ (MBS) strong performance reported this week, ahead of the mainboard-listed integrated resort operator’s release of its own third-quarter financials in mid-November. In separate reports on Thursday (Oct 19), CGS-CIMB and Nomura Global Markets Research underscored Genting Singapore as an undervalued stock at its current levels as they expressed optimism for its upcoming Q3 FY2023 results.””
So now we’ve had those Genting results: “For the three months to Sept 2023, Genting Singapore reported earnings of $216.3 million, up 59% y-o-y. Ebitda, in the same period, was up 37% y-o-y to $346.1 million while revenue was up 33% y-o-y to $689.9 million. DBS notes that revenue and ebitda have reached 115% and 124%, respectively, of the levels of the pre-pandemic 3Q19, despite attendance not yet fully rebounding, with Singapore’s tourist arrivals for the quarter at just 77% of the pre-pandemic figures.”
Genting Singapore share price from Google Finance
The complication here is that costs are rising. At which point a decision has to be made. Go for a low cost - and therefore low end of the market - plan or try to move upmarket? Doing that second might mean that premium prices can be charged and therefore decent margins maintained: “Genting Singapore's $6.8 billion expansion spend, announced by the company on Nov 10, far exceeds the $5 - $5.5 billion capex projected by DBS Group Research and the $4.5 billion announced back in April 2019.”
Well, maybe that will work and maybe it won’t. Which is where the complexity is. Clearly, the current business is doing well and has room for further expansion within current volume and capital constraints. But that capital spend for the future could well be a considerable drag on future results.