Genting Singapore shares down more than 9% after news of gaming tax rise

Genting Singapore's shares fell as much as 9.8 per cent, the most since August 2015.
Genting Singapore's shares fell as much as 9.8 per cent, the most since August 2015.PHOTO: REUTERS

SINGAPORE - Gaming company Genting Singapore saw its shares fall more than 9 per cent at the close of the local bourse on Thursday (April 4), amid news of a $4.5 billion investment plan for Resorts World Sentosa (RWS) and a 50 per cent increase in casino entry levies for Singaporeans and permanent residents.

The counter was the most heavily traded on Thursday, with more than 239 million shares changing hands. It closed at $0.97, down 10 Singapore cents and 9.35 per cent.

Bloomberg said this is the most the stock has slumped in almost four years and that at least six brokerages, including Morgan Stanley and JPMorgan, have lowered ratings on the casino operator.

Nonetheless, some brokerages are maintaining that the overall long-term outlook for the company is a positive one even if there may be immediate headwinds.

OCBC Investment Research maintained a "buy" rating for the mainboard-listed company, pointing to the earnings certainty in the long term.

Analyst Carmen Lee said RWS's attraction as a tourist destination is set to be enhanced due to new tourist attractions, new hotels and a new driverless transport system in Sentosa. 

"When fully developed, its (RWS) facilities will be able to capture more meetings, incentives, conferences and exhibitions (MICE) attendees and more tourists to its expanded hotels and tourist attractions," said Ms Lee in a report, adding that a fair value of $1.31 will be maintained for the stock.

 
 
 
 

DBS Group Holdings analyst Mervin Song pointed to near-term headwinds from the immediate increase in entry levies, as well as the 3 per cent increase in gaming taxes from March 2022.

"Given that a large proportion of the new hotel rooms and attractions are expected to be opened after 2022 when the 3 per cent increase in gaming taxes is implemented, there may be a short one- to two-year window when Genting Singapore's earnings are tempered," he said in a statement.

Mr Song told The Straits Times that this may explain Thursday's drop in Genting Singapore's shares, as investors focus on negatives and the quantifiable impact of the gaming tax.

However, he added that the increase in tax rate may be offset by the opening of attractions such as the Oceanarium, which is an expansion of the S.E.A. Aquarium, and growth in the overall gaming business.

"We believe the development of RWS 2.0 is a transformative event for Genting Singapore with potential for its gaming and non-gaming revenue to reach new levels beyond 2025," he said, maintaining a "buy" recommendation with a street-high target price of $1.54.

In the meantime, Maybank Kim Eng cut its recommendation from "buy" to "hold" with a target price of $1.12, saying it expects "short-term pain before long-term gain" in its report.

Its analyst Yin Shao Yang said in a report: "We fear the casino entry levy and tax rate hikes will weigh on short-tern earnings before its potential is realised in 2024-2025."

He added that the higher casino tax rates in 2022 will be exacerbated by the goods and services tax hike to 9 per cent, which is expected to take effect between 2021 and 2025.

"On balance, we gather that the effective casino tax rate will be hiked by 5 percentage points.

"Thus we fear that Genting Singapore earnings will structurally contract again come March 2022 before growing as the new RWS 2.0 development and enhancements come onstream by 2024-2025," added Mr Yin.