The Genting Rights Dampener

Just when you are about to go ballistic on Genting's stable of shares,they throw you a dampener spanner! So, there is cost overrun after all. And they not only gamble, but lie as well.

The latest Reuter Report has this to tell.

Casino operator Genting Singapore plans to raise more than $1 billion through a rights issue to help fund its upcoming casino as well as build a war chest for possible acquisitions.It's a big issue.

Genting Singapore, which is about 54 percent held by Malaysian casino operator Genting Bhd, has almost completed building one of the city-state's two integrated casino resorts. It is also the largest casino operator in the United Kingdom.

The rights issue will be underwritten by a group of about eight banks, including UBS, JPMorgan, DBS and Deutsche.

Genting's Resorts World at Sentosa casino has been plagued by cost overruns due to the escalating price of steel and other building materials.The latest cost estimate for the casino is about S$6.59 billion ($4.63 billion), up from the S$5.2 billion price tag cited shortly after the firm won the Singapore bid in December 2006.

Genting Singapore's share price has more than doubled this year. It closed at S$1.19 on Tuesday, up from 45 cents at the end of 2008. Genting has reported losses since it listed in Singapore in December 2005 due to the cost of building its Singapore casino and write-downs related to its purchase of casinos in Britain.

For the second quarter ended June, the firm reported a net loss of S$50.7 million compared with a loss of S$1.8 million a year ago.

Oh, what a gamble. I do hope these Genting chaps know what they are doing.

Bring in the High-rollers!

Salvatore Dali has a take on Genting Singapore and the Resort world Sentosa today. A really auspicious day; 9th September in the Year of our Lord 2009.

He wrote:

Genting Singapore has had a tremendous run over the past few weeks, so much so that it even dragged Genting Berhad higher as some analysts think its a cheaper way to play Genting Singapore.

Testing of some of the Universal Studio rides have already begun while 4 hotels scheduled for opening in phase 1 have been topped up. Resorts World Sentosa (RWS) should be able to open on time, if not earlier. A sly indication, there is a charity concert to be held at the Festive Hotel, and that has been been scheduled for December 19th - that would surely steal some thunder from Marina Bay Sands.

Genting Singapore's principal activities are in developing integrated resorts, operating casinos, offering international sales and marketing services to Genting Highlands Resorts and providing IT application related services. Genting Singapore is currently the largest casino operator in the UK.

Let us look at the share-holding spread of its majority shareholders:

Genting Singapore
Paid Up: 9.637bn shares

Genting Overseas Holdings (Genting Berhad) 54.44%
Resorts World Limited 6.16%
DBS Vickers Securities Pte. Ltd. 5.73%
DMG Pte. Ltd. 3.33%
UOB Kay Hian Pte. Ltd. 2.48%
Citibank Nominess Singapore Pte. Ltd. 2.06%
DBS Nominees Pte. Ltd. 1.63%

Free Float: 30%
Market Cap: S$11.2bn / RM27bn
52 week range: S#0.32-S$1.18

RWS is still targeting for a soft launch in 1Q10, but some talks have emerged that its casino may open before the end of 2009. RWS has increased its investment from S$6b to S$6.59b, but it expects the additional investment to be funded by operating cash flows once the IR opens. It has awarded over S$4.7b in project costs but it expects capex to remain under S$6.0b by the time of opening. Some of the attractions will only be opened by end 2011.

Management affirmed that the project remains on track for a 1Q2010 opening. But it is still unable to commit to an official opening date as yet given the uncertain time-line associated with the crucial testing and commissioning of Universal Studios Singapore’s (USS) attractions. Installation works for most of the rides are currently ongoing and testing and commissioning works are slated to begin in Oct-09.

The casino licence application in progress. Management reiterated that both international resorts would need to satisfy three criteria before submitting their respective casino licence application. Particularly, RWS would need to:

i) spend 50% of its committed investment amount
ii) build 50% of the gross floor area
iii) build 50% of the site area.

It is estimated that RWS would reach the necessary milestones by end-3Q09. The casino licence, upon award, is for 30 years with renewals required once in every three years. It must have a competitive edge to attract VIP players. With industry players expecting the Macau government to cap VIP gaming commission rates at 1.25% by year-end, this could be a blessing in disguise for Singapore’s two upcoming casino operators in an attempt to get a slice of the Mainland Chinese VIP gaming pie. Management acknowledged the need to be competitive regionally and depending on market conditions, it would not discount the possibility of paying more attractive commission rates to attract the high rollers. Singapore’s more favourable VIP gaming tax of 12% (including 7% value added tax) vs. Macau’s 39% also pave way for such a possibility.

Infrastructure has been put in place to cater for IR traffic. Completion of the 3rd lane (per direction) on the vehicle bridge linking mainland to Sentosa (from 2 lanes to 3) has been confirmed. Vehicles from mainland can also enter car park of RWS from the bridge without having to drive into Sentosa. A 620m pedestrian bridge with travellators (capacity of 8,000 guests / hour / direction) will also be constructed. Management is gunning for 13MM visitors in 1st year of operations. Universal Studios Sentosa (USS) will be a major draw. along with the casino business is a volume business and USS, the Resort World at Sentosa should draw the crowd. Of the 13MM visitors, 40% is expected to be locals and 60% foreigners.

What will be the expectation of the casino? For one, casino revenue is expected to contribute 70% of total revenue.It will open with slightly more than 500 tables, a little baove the number at Genting Highlands in Malaysia but less than the 1,000 tables indicated by Marina Sands.

What is i nstore for high rollers? What are the junkets? Junket commissions is one, naturally.The lower tax structure in Singapore should give operators the flexibility to be pay above Macau's commission rate of 1.25% if need be.Indonesia and Thailand are important markets for them. The Genting Group has long standing relationships with junket operators in the region.Singapore will have a formal process of registering the junkets but junket rules not out yet.

“The upside in Genting Berhad lies in two key angles. First,the explicit re-rating of Genting Singapore as a subsidiary and second, the narrowing of the “discount to entry” as a parent (company). The current share price is pricing in a value of S$0.63 per share for Genting Singapore and Salvador thus advocate a buy call on Genting Bhd on the premise that investors are paying around 50 per cent “discount to entry”

Malaysian gaming stocks are also playing catch-up with their regional peers, which rose sharply last week on reports gaming revenue in Macau, the world’s top gambling market, rose to a new high in August.

Genting Berhad is trading at 14x FY11F PE and 6x EV/EBITDA vs Genting Singapore's 29x and 11x respectively (strongest earnings growth in the sector). Every 1% rise in Genting Singapore's value would boost Genting Berhad's SOP valuation by 0.4%.

According to Salvadore, much of what was written by him was a summary of what been printed in most research reports. He has this to say," I am beginning to like Genting Singapore but I frown on Genting Berhad being a tag along play. The big difference is that Kien Huat Realty holds only 32% of Genting Berhad. As usch. there is a humungous free float, while the shareholding is curiously tight in Genting Singapore. If one look closely at the substantial shareholders, there are plenty holding 2%-3% stakes but held under nominees. My view is that the Lim family and owner/managment probably think that Genting Singapore is the most exciting vehicle to be invested in (among the array of Genting companies) for now and over the next 2 years.

Genting Berhad is there as an anchor controlling the vast array of listed entities. I would stick with Genting Singapore. Many are already revising upwards their targets from the S$1.10-S$1.28 levels. It is too complicated to put the spreadsheet in this blog but at those levels, the visitors to RWS is more in the range of 10m a year, I think there is a good chance that it will be exceeded. I would not be surprised if Genting Singapore rides the wave to S$1.50, and even that is not terribly expensive, really.

Is he terribly optimistic?

YTL Power -Losing Power?

Shares in YTL Power have eroded more than 2 per cent during the past week.Why? Neddling worries that the cash-rich company could be using their money to fund the YTL Group's RM2.5 billion (S$1.02 billion) investment in its wireless telecommunications business in Malaysia could be one.

YTL Power, a 51 per cent subsidiary of YTL Corporation, is an institutional favourite among portfolio investors because of its high dividend payout - 6 per cent annual yield - and steady, recurring earnings from power generation and water and waste management services in Malaysia and elsewhere.

In June, the firm made what one analyst described as an 'inconspicuous' announcement to the stock exchange — that it was buying 60 per cent of private firm YTL Communications from a related YTL unit for RM300,000.

Given YTL Power's generally heroic standards, the scale of the purchase was laughably dismissive, but YTL Communications is one of three firms awarded Wimax (Worldwide Interoperability for Microwave Access) licences by the Malaysian government two years ago.

It is a known fact that the government is putting pressure on these firms awarded Wimax to start up quickly or earn its displeasure one of which is to revoke their licences if they do not increase broadband coverage quickly enough.

The sell-down of YTL Power's shares reflects the concerns of investors who worry that a perfectly sound company could dent its earnings by venturing into a risky and intensely competitive business that has never really taken off worldwide.

Even YTL's technology partner, US-based Clearwire Wireless, is currently loss-making. Meanwhile, Green Packet, another Malaysian firm that's been Wimax-licensed and has already rolled out a portion of its network, made a first-half 2009 loss of RM50 million. Analysts have also noted that the YTL Group's capital expenditure plans are 2.5 times those announced by Green Packet.

YTL Power has always grown through acquisitions, using the cash flows from its power generation businesses in Malaysia to buy steadily profitable utility assets in mature markets — power assets in Singapore and Australia and water plants in England, for example. In that context, its potential entry into a risky business in Malaysia runs counter to its proven business model.

Still, that is not to say the Wimax business, however risky, could profoundly damage the company. It is controlled and run by tycoon Francis Yeoh , who has turned the eponymously-named YTL — after his father Yeoh Tiong Lay's initials — from a RM200 million firm into a multi-billion dollar business. Yeoh is generally rated by analysts as a prudent manager.

Nor is the firm financially shaky. It made a net profit of over RM625 million on sales of RM6 billion in 2009. It has annual free cash flow of RM2 billion and a cash hoard of RM1.5 billion.

In downgrading YTL Power to a 'sell', however, Arab-Malaysian Bank's research unit said the group's potential entry into telecommunications is a 'negative development as it will be extending its business — which provides stable, incurring income streams — to the uncertain revenue of a technology that has yet to fully kick off even in developed countries.'

The bank estimated that with this potential development, the firm's fair value is RM2.05 — versus RM2.12 currently.

Meanwhile, Bloomberg reported that Calyon and Natixis are among seven banks that agreed to lend $1 billion to YTL Power International Bhd for its acquisition of PowerSeraya Ltd in Singapore.

Maybank Investment Bank, Oversea-Chinese Banking Corp, Bank of Tokyo-Mitsubishi UFJ, National Australia Bank and Sumitomo Mitsui Banking also contributed to the three- year loan, which was arranged by DBS Group.

DBS agreed to provide YTL with a $2.25 billion credit line in December after the Malaysian utility bought Singapore power generator PowerSeraya from Temasek Holdings for about $3.8 billion.

Looks like while one is calling it poison, the other is calling it manna, aren't they, Francis?

At long last...The fruit that Eve Ate!

Well, truth be told. National Geographic has now finally discovered the fruit that Eve ate in the Garden of Eden. See it for yourself! Small wonder!

Down the Totem Pole of Competitiveness

This is a case of 'Malaysia Boleh! in reverse......

The World Economic Forum’s Global Competitiveness Report for 2009-2010 released today show Malaysia’s global competitiveness ranking dropped three positions to 24.

This drop was the result of a much poorer assessment of Malaysia's institutional framework. According to the Report; every indicator in the area had been exhibiting a downward trend since 2007, causing Malaysia to tumble from 17th to 43rd position in this dimension in just over two years.

Switzerland topped the overall ranking of 133 economies, with the US felling one place to second position. Asia continued to feature prominently with Singapore at third and Japan at eighth, and Hong Kong, South Korea and Taiwan all in the top 20.

The report also said security was of particular concern in Malaysia where its ranking dropped 25 levels to 85th.

According to the business community, the potential of terrorism (ranked 97th) and crime (ranked 95th) both imposed and elevated significant business costs.

Also of concern was the budget deficit, which increased in 2008, amounting to almost five percent of Malaysia’s gross domestic product.

On the plus side, Malaysia scored high in most other dimensions particularly in those factors at the top end of the value chain, namely business sophistication (ranked 24th) and innovation (also ranked 24th).

The Report said expectations were high for Malaysia that averaged an impressive seven percent growth per year between 1990 and 2000 and a healthy five per cent since then.

Mirroring this economic success, Malaysia had featured prominently in the competitiveness rankings ever since its first inclusion in 1994.

“Indeed, it remains the most competitive Stage 2 (efficiency-driven) Country,” the Report said.

It pointed that in order to maintain its competitive edge, Malaysia now needed to prepare its smooth conversion into a knowledge-based, innovation-driven economy.

“Improving both the quantity and quality of higher education (ranked 41st) and boosting technological readiness (ranked 37th), particularly information and communication technology penetration, would serve this effort well,” it said.

Unless the political masters are suffering from agoraphobia, there is a wide countryside outside for Malaysia to improve.

Malaysia Boleh!