SHORT-SELLERS are betting that Genting Singapore Plc, the worst-performing stock on the city’s benchmark equity index this year, has further to fall amid plunging earnings at Southeast Asia’s biggest casino operator.
Bearish bets on the stock climbed to the highest level in a year as Genting tumbled 11 per cent since it announced in August that second-quarter profit dropped 27 per cent. Brokers from Mizuho Securities to Macquarie Group have cut their ratings on the company.
“Given the way earnings are being downgraded, it may be too early to buy the stock,” Alan Richardson, whose Samsung Asean Equity Fund outperformed 96 per cent of peers tracked by Bloomberg during the past five years, said by phone from Hong Kong.
“Genting is still trading at a premium over the Singapore stock market. Even if the shares fell another 20 per cent, it will still be more or less trading at the market’s multiple.”
While most analysts recommend buying or holding Genting, the shares yesterday traded at S$1.14 (RM2.92), a 19 per cent discount to the consensus price target.
The stock is the sixth most-shorted on the benchmark Straits Times Index, according to Markit Group Ltd data compiled by Bloomberg.
Short interest climbed to 2.2 per cent of freely-tradeable shares at the end of last week, the highest ratio since July 2013, the data shows.
Samsung Asset Management Co. sold its Genting stock after the results announcement in August and may consider purchasing the company’s shares again should they fall to about S$1, Richardson said.
The South Korean money manager doesn’t use short-selling as an investment strategy, he said. The shares fell 0.9 per cent to S$1.13 as of 1028am in Singapore.
Genting slumped 24 per cent this year through yesterday, making it the worst-performing stock on Singapore’s Straits Times Index and dragging valuations to about 20.7 times estimated earnings, according to data compiled by Bloomberg.
That is still above a multiple of 14.5 for the city’s benchmark gauge. Company spokeswoman Lee Sin Yee declined to comment.
“We think the stage is set for disappointment,” Somesh Kumar Agarwal, an analyst with Macquarie, wrote in a note when the brokerage downgraded its rating on the stock to “underperform” from “outperform” and reduced its share-price forecast by 39 per cent to S$1.
“We think the Singapore gaming market cannot grow and Genting will be pushed into extending more credit to VIP players to protect market share, leading to more bad debts and deterioration of returns.”
Analysts have been tempering their earnings estimates for Genting, with the average forecast by 18 brokerages predicting the company will post a profit of S$680 million this year, according to Bloomberg data.
Growth will remain weak, with a chance of further earnings downgrades given declining tourist arrivals in Singapore and rising risk of bad debts from gambling, Richardson said. Bloomberg