By Xavier Kong
KiniBiz pieces the factors together and joins the dots, looking at how Genting did in the past, and their prospects in the future. While Genting Bhd remains a group with a geographically diversified asset base, it functions like a tree, with its branches all over Southeast Asia, as well as in Oceania, America, and Africa, it still has that one primary root based where it began – here in Malaysia.
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According to the group’s unaudited 2013 annual report, Genting Bhd had a total revenue of RM17.11 billion for the past financial year. The leisure and hospitality segment (under which the casino comes) itself provides 89.84% of that figure, contributing a total of RM15.37 billion to the group’s overall revenue, with the other segments of the group contributing only RM1.73 billion in the past year.
The Genting group’s leisure and hospitality operations, under which the casinos come ( see chart) have diverse operations throughout the world but most of its earnings still come from Malaysia and Singapore.
Its Singapore operations under Resorts World Sentosa was not doing as well as the previous year, with overall gaming revenue registering a drop, despite the increase in premium players’ rolling volume. VIP players contributed 57% of the revenue from the casino segment in Resorts World Sentosa, while 43% of the total figure was from casual players.
That means the contribution to earnings from the premium players was less than the previous year, which indicates better performance from the casual players. But casual players also contribute to other sectors of the leisure trade such as hotel accommodation, theme park visits and patronage of food and beverage outlets. It could well be that casual players’ contribution to profit could be more than the VIP segment.
Resorts World Sentosa continued to register healthy growth with strong visitation, that still registered a contribution of RM7.15 billion, almost half of the revenue provided by the segment to Genting Berhad. But it brought in 2% less over the past year, as compared to the revenue of RM7.27 billion of 2012.
Singapore remains a major contributor to the revenue, likely due to the duopoly that Genting Singapore has with Las Vegas Sands’ Marina Bay Sands there. This situation is similar to the situation of Resorts World Genting as well, which maintains a monopoly over the Malaysian casino sector.
Resorts World Genting recorded a revenue of RM5.68 billion in FY13, a 4% increase to 2012’s RM5.48 billion, and the group remarked that the higher revenue is mainly due to overall higher volume of business and higher hold percentage in the premium players business.
According to management, Resorts World Genting’s casino revenue had 40% attributed to VIP players, while 60% was due to the mass market. UOB Kay Hian’s Vincent Khoo noted that unlike Macau, the VIP market has been a smaller contributor to net revenue and earnings for the Malaysian operations.
Genting Bhd also mentioned that the adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) decreased, “mainly due to higher payroll costs and contributions in support of the Group’s social responsibility efforts.”
Operations abroad
Genting’s United States and Bahamas operations under Genting Malaysia had turned a 10% increase in revenue to RM941.8 million in FY13 from FY12’s RM852.9 million, “contributed mainly by higher volume of business from the operations of Resorts World New York City and the commencement of Bimini operations.”
The higher adjusted EBITDA was also mainly contributed by Resorts World New York City, but was partially offset by the loss suffered from the start-up of the group’s Bimini operations, “a result of operational challenges faced.”
Genting Bhd also noted that the adjusted EBITDA of the previous financial year had included a construction loss of RM48.2 million due to cost overrun from the development of Resorts World New York City.
Genting’s United Kingdom operations also did better this financial year, with RM1.59 billion worth of revenue compared to the RM1.41 billion in FY12, a 13% increase. However, the pre-tax profit of the United Kingdom casinos at RM230.3 million took a hit from bad debts written off, mitigating the increased business.
However, a comparison between the Singapore-Malaysia operations with Genting’s operations in the United Kingdom show a clear point. Between the two countries here in Southeast Asia, Genting only maintains two casino resorts, while in the United Kingdom, Genting maintains 42 casinos, mostly under the names Circus and Maxims.
Yet, there is such a clear disparity between the revenue load. The two casinos and associated operations in Malaysia and Singapore accounted for almost 85% of revenue while the 42 casinos in the United Kingdom barely contributed 5.5% of the overall revenue of the Genting Group. In terms of profit, Malaysia and Singapore accounted for nearly 95% of profit while UK accounted for a mere 4%.
One point noted was that Malaysia might need more casinos, and there was news that there would be a casino in Johor. However, this was vehemently denied by authorities, claiming that there was never such a bid, and that even if there were , the state government would never allow it to be passed.
The future
Analysts are neutral on Genting’s prospects for the year. Maybank Investment Bank’s Samuel Yin noted in his report that Genting Bhd is given a hold call, based on the point that the apex company of the Genting Group is currently trading at a “rather demanding 18 times FY14 price-to-earnings ratio, given its volatile earnings profile.”
UOB Kay Hian’s Vincent Khoo noted that the outlook for Genting will be “quite pedestrian for the Malaysian, Singaporean and even New York operations.”
Khoo also noted in his report on Genting’s results that Genting Bhd remains a buy, but with trimmed earnings due to the poor quarter in Singapore and the losses incurred by the Bimini operations in the United States.
It is also concurred by analysts that the Japanese casino will remain a long-term plan for now, with Khoo noting that “construction works in Japan may only start in 2017, at the earliest.”
The South Korean joint venture will be funded via existing cash reserves, with progressive opening expected in 2017.
Genting Malaysia, on the other hand, has been given a recommendation of buy by Maybank Investment Bank, and hold by UOB Kay Hian, with a lower number of mass market casino players, ostensibly due to the closing of the outdoor theme park for rebuilding as the 20th Century Fox World Theme Park.
Conclusion
The competition for high-rollers appears to be heating up, and Genting is starting to feel the pinch with the group trying to keep its numbers of VIP players.
The picture that emerges is quite clear – Genting Bhd is doing very well because of a monopoly in Malaysia and an oligopoly in Singapore where it controls one of two casinos. because of this, it enjoys high revenues and high margins.
Its operations elsewhere in many areas in Asia and the US are not likely to do anywhere near as well because of cutthroat competition and a surfeit of players, even if gambling in Asia is not just about leisure.
To quote Martin Chua ( which we did in Part 4) again, “Everyone is trying to get a touch of the sacred green felt and strike it rich. Gamblers come to Las Vegas to be entertained, but here in Macau, gamblers, especially Chinese gamblers, step into a casino to challenge their destiny!”
That also explains why casinos outside Asia simply don’t do as well.
Thus, for most of Asia, Genting is not likely to see profits anywhere as high both in terms of absolute values and margins because of extreme competition, negating its strategy of growth by expansion. Unless it makes inroads into restricted markets especially via large operations as in Singapore, growth may well be limited although profitability will be good.
In that sense, South Korea and Japan may offer some opportunities although culturally gambling may not be as much an attraction as it is among Chinese communities.
In terms of the high rollers/premium players/VIPs, they are a lot more mobile than the others and the earnings from these sources can be volatile. But still the casual market is very important, especially so in Malaysia which has a large number of machines relative to tables and only slightly less so in Singapore.
Meantime, Malaysia and Singapore will continue to be the golden geese for Genting for many more years to come. And if anyone wants direct exposure, they should go directly to Genting Malaysia (which owns Resorts World Genting) and Genting Singapore (which owns Resorts World Sentosa).
Yesterday: A day at the casino on the hill
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