Shares of Genting Singapore sank more than 8 per cent yesterday after the mainboard-listed casino operator issued a profit warning on its upcoming second-quarter results.
Genting plunged as much as 10 per cent to a six-year low of 81 cents at the opening bell yesterday, but pared losses to close at 82.5 cents, down 7.5 cents.
Among the day's most actively traded counters with 61.4 million shares changing hands, Genting was the Straits Times Index's worst performer yesterday. The company, due to release its earnings on Aug 13, expects a "significant decline" in net profit for the second quarter.
In a statement to the Singapore Exchange on Tuesday, Genting blamed the expected fall in earnings to "fair value loss on derivative financial instruments as a result of unfavourable market conditions and unrealised foreign exchange translation losses".
The company expects adjusted earnings before interest, taxes, depreciation and amortisation for the quarter ended June 30 to be comparable with the previous three months.
Mr Vitaly Umansky, global gaming senior research analyst for Sanford C. Bernstein (Hong Kong), said the company "may use derivatives, such as interest rate or currency swaps, to minimise volatility".
"In the first quarter, Genting had a fair value loss on derivative financial instruments of $118 million. The firm had net profit of $92 million, after taking into account the derivative fair value loss... For the second quarter, it sounds like the company has a similar fair value loss - or a paper loss reflecting the fair market value of the derivative instruments. Depending on the nature of the contracts, these losses/gains could be tied to a variety of moving pieces - interest rates, currencies, etc. Thus, unfavourable market conditions reflect the fact that prices moved the wrong way," he told The Straits Times.
Mr Grant Govertsen, a Macau- based analyst at Union Gaming Group, said the profit warning implies that Resorts World Sentosa is likely "suffering from bad luck in the VIP segment, making the second quarter the fourth consecutive quarter of well-below-normal hold".
"Even after adjusting for bad luck, RWS is operationally lagging behind Marina Bay Sands (MBS), likely with a growing gulf in the higher margin non-VIP segments."
The new RWS hotel in Jurong is likely not having a measurable positive impact yet on mass market results, given its distance from RWS. "The relative lack of retail and Mice (meetings, incentives, conferences and exhibitions) at RWS is likely another factor as these segments continue to grow at MBS and were notable contributors to cash flow."
Genting's first-quarter net profit tumbled 73 per cent to $62.7 million, while revenues fell 23 per cent to $639.2 million as gaming revenue plunged 26 per cent year-on-year to $494.9 million.
With many of its VIP high-rollers coming from China, an economic slowdown as well as an anti-corruption crackdown by the Chinese government has hit RWS' VIP volumes.