Genting chases global expansion to boost growth

Published in: Latest Intelligence

Genting Bhd is on an expansion drive as the Malaysian conglomerate aggressively seeks global growth to offset a flattening in its core Singapore and Malaysia markets.

The company may spend at least $9.5 billion over the next five years, according to CIMB estimates, and that doesn’t include a potential project in Japan or Miami.
The group recently announced a venture in South Korea, a new casino in Las Vegas, and a major revamp of its Genting Highlands property at home. Its name has also been mentioned in connection with possible projects in Florida, Vietnam, Sri Lanka, Taiwan and the main prize, Japan.
The plans have generated considerable buzz about the sprawling conglomerate that has interests ranging from cruise lines to plantations. Ten of the 22 analysts who cover the company have either a buy, or an outperform, rating on its shares with nine holds, one sell and one underform, according to Reuters data.
“Expansion plans are important as they are not in Macau,” CIMB analyst Lucius Chong said. “Singapore is highly regulated and showing pedestrian growth while in the Philippines competition is increasing and the local market may not be deep enough.”

Chong has an Add rating on Genting.

Genting Bhd, the holding company of the group, is 40 percent-controlled by Malaysia’s Lim family. The company reported revenue from its gambling and entertainment businesses of 16.47 billion ringgit ($5.04 billion) in 2013, with the bulk, or 13.94 billion RM coming from Malaysia and Singapore, according to its annual report.
The group is made up of five different listed companies. Singapore-listed Genting Singapore controls the Resorts World Sentosa casino on the island. It is also the listed unit that recently formed a joint venture with Chinese property developer Landing International for a $2.2 billion resort on South Korea’s Jeju island.
Genting Singapore is spearheading growth in the Asia Pacific region and will most likely be the unit that bids for a Japan license. While the group missed out on a Macau license, it now has a longer track record as an integrated resort operator and already has capital, meaning it’s seen as a strong contender. Genting Bhd had $5.4 billion in cash on the balance sheet at end December 2013.
Genting Hong Kong is about 60 percent owned by the Lim family, with Genting Malaysia holding a direct 18 percent stake. It controls Resorts World Manila in the Philippines through a joint venture with Travellers International Group and is responsible for the cruise business, Norwegian Cruise Lines and Star Cruises.
The Hong Kong unit, which owns 7 percent of Australia’s Echo Entertainment,  also focuses on Asian expansion and will likely be the company involved in a potential casino venture in Sri Lanka. Rumours of Genting’s interest in developing a resort on the island have been widely reported but never officially confirmed.
The final gaming unit, Genting Malaysia gets 80 percent of its EBITDA from the Malaysian market where it has a monopoly, while the remaining 20 percent comes from operations in New York and the U.K. Genting Malaysia is responsible for Western Hemisphere expansion and the company is betting big on recovery in the U.S. market.

The company in April paid a $1 million application fee to explore the possibility of building a resort in New York State, where it currently operates a racino, a combined racetrack and casino.
In Las Vegas, CIMB estimates that the construction of a $4 billion, 3,500 room Resorts World Las Vegas will start in the second half of this year, with the first phase to open in the third quarter of 2016. The market for the Asian VIP business in Las Vegas is strong and Genting is likely to follow the example of Wynn Resorts and Las Vegas Sands in cross marketing their Asian VIP database into Vegas.
However, plans for another casino resort in Miami ran into a setback in April when state legislators failed to reach consensus on a bill to open up the industry in the state. The sticking point was negotiations over an existing gambling contract granted to the Seminole Indian tribe.
Genting Malaysia is also involved in major expansion plans at home, spending $1.5 billion to revamp its Resorts World Genting property and bring it up to international standards. The changes include a deal with Twentieth Century Fox to open a giant theme park in 2016.
“They have noticed that the tastes of hard core gamblers are changing so they want to spend 4-5 billion ringgit on upgrading. They are planning to add 13-15 percent more rooms and historically adding capacity has boosted growth,” another analyst, who asked not to be named said. Their occupancy rates are 96 percent so demand is there, he added.
Chong said the growth prospects for Malaysia for the next three years are quite strong, as the property was underinvested.
“They are taking the asset to the next level. It’s the only destination with a casino in a temperate climate in the highlands and is quite a unique location,” he said. “It won’t be as fancy as Genting Singapore, but it’s unique and cost effective for Malaysians, Indonesians and Thais.”
While analysts are generally bullish about prospects for the group, there are critics of the unwieldy corporate structure. It gives the company access to capital raising opportunities, but makes it difficult for investors to gain full exposure to the group’s gaming business.
“For investors the group structure is a contentious point,” the unnamed analyst said, adding that the interests of the family don’t always align with those of the investment community.
That said there may be changes. The company has indicated that it may be prepared to spin off its U.S. and U.K. gambling operations into separately listed companies once they have reached a certain critical mass.
Genting Malaysia has also classified its stake in the Hong Kong company as an asset for sale and it’s likely to be placed out to investors, with the Hong Kong company ultimately coming under the direct control of Genting Bhd, analysts say.