I took this from Value Investing in KLSE website and this is one perspective of an analyst. Read on.
Saturday, June 13, 2009
Genting Bhd is having money problem !
Genting Berhad, an investment holding company, engages in leisure and hospitality, gaming and entertainment, plantation, power generation, real estate, tours and travel related services, genomics research and development, and oil and gas exploration activities worldwide. The company operates in five divisions: Leisure and Hospitality, Plantation, Property, Oil and Gas, and Power. The Leisure and Hospitality division operates hotel, resort, gaming, and entertainment businesses; and provides tours and travel-related services, and other support services. The Plantation division involves in oil palm plantations, palm oil milling, and related activities. The Property division engages in the property development, and letting of land and premises. The Oil and Gas division involves in oil and gas exploration, development, and production, as well as sale of crude oil. The Power division engages in the generation and supply of electric power. The company also provides advisory, technical, and administrative services to oil and gas companies; risk and insurance management consultancy; project management services; information technology related services and marketing; research and development of software and consultancy services; and offshore captive insurance and financing. In addition, Genting involves in leasing and money lending; golf course and casino operations; manufacturing and trading of bio-oil; provision of cable car services; provision and sale of utilities consisting of treatment and supply of water; and management of loyalty program management services. Further, the company involves in the genomic research and development, fresh fruit bunches processing, and provision of IT/data centre and consultancy services, as well as Internet sports betting services.
Based on its historical earnings, Genting 's forward P/E ratio is around 17 times. This is a no-brainer stock because it consists of cash cow businesses such as casino,money lending,power generation,oil &gas,plantation etc With the rebound of commodities prices, Genting is well positioned to reap huge profit again. I still remember when Genting proposed 5:1 share split in 2007.Its share price shot to the roof almost touching RM 40 / share. At that time,it has not even bid for the construction of Sentosa Resorts World in Singapore or bought stakes in MGM.
After the share split,its price shot up from RM8 to 9.xx per share. At current valuation, Genting is cheap due to its diversification of businesses in all sectors which will produce huge cashflow when the economy recovers at the end of 2009.
This is not a stock for dividend yield but it is certainly a growth stock. Its cash coffer is growing too fast and Genting is facing the problem of having too much money. In addition to its own cash,its group of companies can easily raise cash from its shareholders/financial institutions.
At this juncture,Genting may
a) Declare special dividend (very unlikely because there
are so many bargains around the world)
b) Increase stakes in other big players such as MGM
(very likely)
c) Subscribe to convertible bonds/other issues
offered by other big players such as MGM,which is deeply in debt,with an
option to convert to share (very likely)
d) Related Party Transaction:Very unlikely because the
situation is too delicate now
e) Do nothing: Very unlikely because this is not the
characteristics of top management/Board in Genting
So,you have it. A list of potential action which may be executed by Genting to utilize its cash. There are signs of its baby steps from its acquisition of 3.2% stakes in MGM.
As investors,it's crazy to speculate when is the big announcement.
Let's get in now!
