Tuesday, August 7, 2012

It's time to revisit Genting

Genting Berhad ("Genting") is one company which receives a lot of negative news recently due to its seemingly difficulties in having a strong gaming presence in the US gaming market. Firstly, the plan to open a massive casino was faced with legislative approval in Miami. Then, a USD4 billion plan in New York for a convention center faced brickwall as well, when other competitors of this largest Asian gaming company complaint about the lack of equal bidding opportunities.

Recently, the shares of Genting has gotten a beating dropping from RM11.00 per share to below RM9.00 at a time when other blue-chips are doing well. While I may be one of those who is in criticizing the stock, I think the loss in confidence in the company is probably overdone.

Let's not forget, Genting has 2 very strong casinos in Malaysia and Singapore. The casino in Malaysia is generating income of RM1 billion a year with a net cashflow of more than RM1 billion a year assuming that it has no new investments to be made. Of course, it plans to invest USD4 billion for the New York convention centre and the cashflow outlook may be different once that commences.

As for the Singapore's operations, once RWS is fully completed (by end of 2012), it would have very strong cashflow from the business. It gets around net operating cashflow of SGD1.4 billion a year from RWS. You would be wondering what it would be doing with that SGD1.4 billion generated a year. A small sum of it would be reinvested into the resort in Singapore. The rest - is what we see in Genting - investing into areas that it sees opportunities in, and the areas it deems (seems to me) to be attractive are casinos businesses in US.

We have seen that the Genting Group is in a hurry, trying to do deals in 2 major cities in US - New York and Miami while it is already the largest casino operator in UK. It is also looking at Australia. With that, there is no doubt that Genting is looking to be a major casino powerhouse globally. Already, it is the largest Asian operator. In terms of profitability (measured over the last 2 years), it is probably the 2nd largest after Las Vegas Sands. In fact, it has the strongest balance sheet among the major league casino players - Sands, MGM and Wynns Resorts as these players were affected by the US slowdown.

In US, Sands is the most attractive gaming operator, 2nd came MGM. Sands is now trading at USD33.7 billion market capitalization with PE of around 23x. If you look below at Sands Balance Sheet, Genting's is much stronger. Comparatively, Genting is now trading at slightly more than USD10.5 billion market capitalization.

Sand's Balance Sheet as at 31 March 2012
Genting is in a net cash position and even though with the new investments that it is trying to do, its balance sheet will still be strong with very good net operating cashflow from its 2 very profitable casinos in Malaysia and Singapore. Besides that, Genting has a very decent earnings from its Power Plant and plantation businesses - just that its current income from gaming dwarfs that.

Based on Genting's prospective income this year, the current price Genting Berhad is trading values the company at 12x to 13x PE. That to me is a very attractive proposition despite the troubles it may face in trying to expand its gaming businesses in US. What Genting lacks now as in article by Miami-Herald is a strong brand globally (although it is well recognized in Asia). I however feel that we will see that changed over the next decade if it continues to push hard towards global recognition.

With that, I have bought 1,000 units at RM8.92 for my small portfolio.


Following on to that, I have also injected another RM10,000 into the fund and this is what the position looks like as at today.

8 comments:

Benson said...

Thx ya for ur sharing.
How u think abt genting singapore, the price is also very low now?
Thx again.

felicity said...

I think genting Spore's price is quite decent considering that it is scheduled to be fully completed by end of the year. From then on, it cashflow and balance sheet should improve further.

khengsiong said...

The failed US plans were both pursued by Genting Malaysia. I sold GENM for these reasons, and because its dividend is 'negligible'.

But I think Genting Bhd is in better shape. It recently bought stakes in Australia's echo (through Genting Singapore).

Do note, however, that Taiwan has recently legalized casino, in the isles of Matsu. Competition is getting stiffer.

felicity said...

HI Kheng Siong

Ya I get it.
SOme people may look at dividend for investments. Nothing wrong with that as only with cashflow you can issue dividend, hence chances are the company is doing well. Malaysia is one of the strongest destination for dividend play.
But the way Genting is moving, I do not think they are to push hard for dividend. They are probably taking this opportunity of weaker opponents to be aggressive. By paying dividend, they are going to be weaker financially.
I do have the feeling if Taiwan is to open up for gaming, Genting will want to be there as well. Being financially strong, its appetite will be stronger than the rest. In fact, sensing opportunities the group will want to be involved in any gaming opportunities across the globe is it is sensible. The way I look at it Genting is learning still as they have very good cashflow from both malaysia and Singapore.

Spontaneous said...

Genting berhad drop to 8.70, can i know what do you think of it? Everyone is so worry that the price will drop until 6 or even lower 4. Can you advise on it?

Spontaneous said...

Genting Berhad shares drop to 8.70 closing today (6.9.2012). Can i know what do you think bout Genting Berhad now as everyone is worry that the price will drop to 6 or even lower 4. Can you advise?

felicity said...

It depends on how is your outlook on investing in this stock. The recent drop in shares is not Genting alone but pretty much most of the blue chips stocks.
If you look at it beyond 1 year or even more, at RM4 to RM6 I will buy in large quantities actually.

Genting has some of the most beautiful businesses in Malaysia and Singapore. Unless, they make hug mistakes in US which looks like they are going to invest quite a sum, the fundamental is sound.

felicity said...

I think based on the forum I read, forummers mentioned the huge cash that Genting has.

While it is true, Genting has excess cash, much of the cash is due to the business it operates in - gaming business needs to hold an enormous amount of cash for payment (just in case). Hence some of those cash are for operations purposes - I do not know the amount though.