5th Feb 2014
"If it continues to succeed, the investments put in today could be the seeds for future bumper crops. For now, though, chances are that rich dividends will not be in the horizon for some years to come as the group puts its money to work."
UNLIKE the regular consumer companies with sizeable cash flows, the Genting group has hitherto chosen to return relatively little cash in dividends to its shareholders.
Instead, the billions made by its flagship hilltop casino resort and its four-year-old cash cow in Singapore are channelled to grow other casino resorts.
Billions of ringgit have been spent and committed to expanding the “Resorts World” brand across the globe since the success of Resorts World Sentosa in 2010, and indications are that billions more will be spent in Genting’s bid to make its mark abroad.
Not everyone is complaining, though. In fact, some analysts see opportunity amid the cash needs.
Expectations are that the Genting group would have a local listing for each of its foreign operations — once they are sizeable enough to stand on their own — to realise some value as well as create a new vehicle to tap the capital markets for further expansion. Such was the case for Genting Singapore plc and Genting Hong Kong Ltd’s associates Travellers International Hotel Group Inc (which houses Resorts World Manila) and Norwegian Cruise Line Holdings Ltd (NCL), which listed on Nasdaq last January.
This is why market watchers expect Genting Bhd and its 49.3%-owned Genting Malaysia Bhd to eventually pool their US-based assets for a combined listing.
“It makes sense to combine all three strategic assets of RWNY (Resorts World New York City), [Resorts World] Miami and [Resorts World] Las Vegas together and spin them off into a US listing to crystallise their value once their gaming potential materialises,” says CIMB Research’s analyst Lucius Chong.
As it is, the planned US$4 billion Resorts World Las Vegas is housed under Genting Bhd, which surprised the market when it bought the 87-acre Echelon project site from Boyd Gaming Corp for US$350 million early last year. The group’s New York, Miami and Bahamas casino resorts are housed under Genting Bhd’s 49.3%-owned Genting Malaysia. The North and South American cruise markets are served by Genting Hong Kong Ltd’s Star Cruises and associate NCL. The Lim family owns about 56% of Genting Hong Kong directly while Genting Malaysia holds an 18.4% stake.
Analysts see the reason for the split holdings as Genting’s attempt to spread out capital needs by the various investments and potential ventures. The group, through Genting Singapore, is vying for a licence in Japan which may soon legalise casinos. The Macau venture is to be undertaken by Genting Hong Kong’s 75%-owned Treasure Island Entertainment Complex Ltd (TIECL) (see “Macau and the rise of casino moguls”).
With Japan’s large and wealthy population, CLSA Asia Pacific Markets reckons the country’s two casinos (one each in Tokyo and Osaka), when fully ramped up, could generate annual gaming revenue of US$10 billion. “Such a scale would have Japan challenging Nevada (US$11 billion) as the world’s second largest casino gaming market behind Macau.”
Put in another way, a Japanese casino could see US$5 billion gaming revenue a year, the same amount Galaxy Entertainment Group Ltd deputy chairman Francis Lui has said it is prepared to invest in a gaming resort in Japan and Taiwan. Citigroup expects Japan to approve its Casino Bill by June this year and start accepting proposals “as early as late 2014”. Osaka government officials met representatives from Genting and Caesars Entertainment Corp last year and will reportedly soon see MGM Resorts International.
By comparison, Singapore’s gaming market size was about US$5 billion to US$7 billion a year the past three years, partly due to curbs on junkets and entry barriers for Singaporeans.
In the US, the Lim family has significant investments in other casino ventures. Its late patriarch and founder of Genting, Tan Sri Lim Goh Tong, was a pioneer when it comes to financing native American casinos, long before outfits ran by recognised Indian tribes became sought-after investments.
Already, earnings from the US are comparable to that from its UK casinos, which began operations earlier. US operations contributed RM704.8 million and RM207 million or 6.13% and 4.7% to Genting Bhd’s group revenue and adjusted Ebitda from the leisure and hospitality segment in 9M2013 ended Sept 30. About 10.3% of group revenue and 3.13% of group Ebitda in 9M2013 for the segment came from the UK, where the £150 million Resorts World Birmingham will be ready by 2015.
In a recent note, CIMB’s Chong points out that Genting Malaysia “has ploughed more than US$1 billion into the US”, of which US$700 million went to RWNY “racino” which is showing good returns. Contributions could rise further if Genting wins over legislators and citizens of Miami, Florida, where plans for casino resorts are opposed by Walt Disney Co, which runs Walt Disney World in Orlando, Florida.
Genting is seeking regulatory approval to offer 2,000 slot machines to be housed at the nearby Resorts World Omni Centre in Miami by riding on Gulfstream’s pari-mutuel licence while awaiting legislative approval for a casino permit for its US$3 billion bayfronting Resorts World Miami.
The proposed slot machine-only Miami unit, if approved, will be small relative to RWNY, which has more than 3,000 slot machines and 5,000 electronic table games.
“We reckon that the proposed 2,000 slot machines could easily fetch gross wins of US$450 per machine per day, or a revenue of US$329 million per annum. Mirroring New York tax rates, Miami racino could achieve an Ebitda margin of 20%, raking up annual Ebitda of RM210 million (US$66 million),” UOB Kay Hian’s Vincent Khoo wrote in a Jan 10 note.
Should the proposed venture materialise, the incremental Ebitda of RM53 million could lift Genting Malaysia’s FY2014 Ebitda by 2%, assuming a 25% stake for Genting Malaysia in the four-way Miami partnership. At the time of writing, UOB Kay Hian has a “hold” recommendation and a target price of RM4.47 for Genting Malaysia, and a “buy” for Genting Bhd with an RM11.81 target price.
It told clients to buy Genting Malaysia at RM3.90 levels, saying that it continues to favour the counter “over the longer term” on higher earnings upon completion of its hilltop expansion as well as “likely participation in the Resorts World Las Vegas (RWLV) project”. It did not elaborate on the latter.
Over at the Las Vegas strip, construction of the US$4 billion Asian-themed 175,000 sq ft RWLV on the former Echelon project site is set to begin this year and expected to be completed in 2016. While Genting’s name is dwarfed by the likes of Las Vegas Sand in the West, analysts say the group knows Asians.
Chinese gamblers already are influencing casino offerings in the West, say analysts at CLSA, pointing out how Macau’s most popular table game — baccarat — today accounts for 45% of table revenue at the Las Vegas strip compared with only 17% a decade ago. Asians contributed 52% of table revenues at Wynn Las Vegas versus 24% for US-based patrons and 24% from Latin American nationals, the analysts add.
One explanation for the strength of Asian visitations to Las Vegas, despite a booming Macau, is the low gaming tax in Nevada. And the fact that Las Vegas is twice as profitable as Macau on a pre-income tax basis and 50% more profitable on a post-income tax basis allows Las Vegas casino operators to provide higher rebates to VIP players to lure incremental spending, CLSA says in a recent note detailing the potential impact of the rising number of Chinese tourists venturing abroad.
Strong home base
For now, the lion’s share of Genting Bhd’s earnings still comes from Malaysia and its 52%-owned Genting Singapore.
Of the group revenue for the leisure and hospitality segment of RM11.5 billion for 9M2013, 46.8% was from Singapore and 36.8% from Malaysia. Singapore contributes 51.9% of group Ebitda from the segment of RM4.41 billion for 9M2013 while Malaysia contributes 40.3%.
Lending strength to the S$7 billion contributions from Resorts World Sentosa (RWS), which opened in January 2010, is the Singapore dollar, against which the ringgit has slid from between 2.25 and 2.40 in 2010 to between 2.40 and 2.60 in 2013. Dollar for dollar, leisure and hospitality earnings from Malaysia will still exceed that from Singapore today.
Having completed its S$7 billion Singapore resort with spas and two themed attractions — Universal Studios and Marine Life Park — Genting is pouring RM5 billion over three years to expand its flagship hilltop resort, including RM1 billion to rebuild its outdoor theme park with Twentieth Century Fox, which owns famous movie titles such as Ice Age, Rio and Night at the Museum. The 20th Century Fox World is slated to open in 2016, standing Genting in good stead as theme parks see a revival throughout Asia.
As it is, Genting Highlands — which opened its first hotel in 1971 — is still seeing a year on year increase in visitors despite the opening of Singapore and Macau casinos.
Genting Highlands received 20.5 million visitors in 2012, up from 20.3 million in 2011, 19.9 million in 2010 and 19.5 million in 2009. More than 80% of the visitors were Malaysians and Singaporeans. Room occupancy is also consistently above 95%, the reason analysts are bullish on up to 20% more rooms being added.
Pending completion of the hilltop expansion, Maybank Investment Bank Research sees Genting Malaysia a beneficiary of higher tourist arrivals during Visit Malaysia Year 2014. The research house has a “buy” recommendation on Genting Malaysia with a target price RM4.80, but has a “hold” and a RM10.55 target price on Genting Bhd. Nonetheless, the winning of a casino licence in Japan by Genting Singapore could bring about a re-rating for its parent, it adds. Meanwhile, Genting Singapore’s mass market hotel in Jurong East is slated to open next year.
It remains to be seen if Genting, founded in 1965, will be as successful elsewhere as it has in Singapore and the Philippines. While it may have been partly the fear of competition that drove the group to clinch one of Singapore’s two casino licences in 2006, its deep pockets is proof that something must have been done right.
If it continues to succeed, the investments put in today could be the seeds for future bumper crops. For now, though, chances are that rich dividends will not be in the horizon for some years to come as the group puts its money to work.
[Source]
No comments:
Post a Comment