Why Genting Malaysia Bhd Might Be Riskier Than You Think
December 6, 2019
Genting Malaysia Bhd operates a chain of resorts and gaming centers located in Malaysia, the United States, the Bahamas, Egypt and the United Kingdom. As of 20 November 2019, Genting Malaysia Bhd is worth as much as RM 18.27 billion in market capitalisation. Here, I’ll share its latest financial results and its plan to move forward into the future. As such, here are 9 major things to know about Genting Malaysia Bhd before you invest.
Malaysia Genting Malaysia Bhd owns and operates Resort World Genting, which is a leading tourist destination in Malaysia, and as well as two resorts in Resorts World Kijal in Terengganu and Resorts World Langkawi in Pulau Langkawi.
Starting in December 2013, it embarked on a 10-Year Master Plan to transform Resort World Genting under the Genting Integrated Tourism Plan (GITP). Since then, it has introduced the First World Hotel Tower 3, the Awana Skyway cable car system, the Theme Park Hotel, the newly refurbished First World Plaza, the Skytropolis Funland indoor theme park, the Crockfords Hotel, Genting Highlands Premium Outlet, and as well as the SkyAvenue entertainment complex.
Still, for the past eight years, Genting’s operations in Malaysia has been recorded a gradual decline in earnings before interest and tax (EBIT) to as low as RM 1.50 billion in 2018 from RM 1.85 million in 2011.
The United Kingdom and Egypt Genting Malaysia Bhd owns and operates Resorts World Birmingham and 40+ casinos situated across the United Kingdom and as well as the Crockfords Cairo in Egypt. In 2018, Genting’s operations in these two nations had contributed RM 87.0 million in EBIT, which is insignificant as compared to its operations in Malaysia.
The United States and Bahamas Genting Malaysia Bhd owns and operates Resorts World New York City and a 527-room Hilton Miami Downtown in the United States and as well as Resorts World Bimini in the Bahamas. In July 2017, Genting had embarked on an expansion project on Resorts World New York City and it has a 400-room hotel, additional gaming space, F&B outlets, retail stores and entertainment facilities. Likewise with its operations in the United Kingdom and Egypt, its profit contribution is less significant as compared to its contribution from Malaysia.
Group Financial Results In 2011, Genting Malaysia Bhd had substantially increased its revenues as it started to make revenues from its overseas operations such as the United Kingdom, Egypt, the United States and the Bahamas in 2011. Its group revenues, since then, had increased from RM 8.49 billion in 2011 to RM 9.93 billion in 2018.
In the period, Genting Malaysia Bhd made a total of RM 1.0 – 1.5 billion per year in shareholders’ earnings. In 2016, it has recorded RM 2.88 billion in shareholders’ earnings as it has made RM 1.27 billion in additional disposal gain of available-for-sale financial assets. In 2018, It has recorded RM 19.5 million in shareholders’ loss. It is due to impairment loss of RM 1.97 billion due to its uncertainties surrounding the reaffirmation of the Tribe’s land in trust status which disrupted the development of a new destination resort casino.
For the last five years, Genting Malaysia Bhd has recorded below 10% a year in return on equity (ROE). It means, it has been making fewer than RM 10 in annual earnings from every RM 100 in shareholders’ equity it has from 2014 to 2018.
Balance Sheet Strength In Q2 2019, Genting Malaysia Bhd has recorded as much as RM 11.1 billion in non-current liabilities and RM 18.1 billion in shareholders’ equity. Hence, it has a gearing ratio of 61.49%. In addition, it has a total of RM 8.39 billion in current assets and as much as RM 3.70 billion in current liabilities. Thus, it has a current ratio of 2.28.
Major Shareholders As of 14 March 2019, Genting Malaysia Bhd’s 5 major shareholders are listed as follows:
GIC Private Limited for Gov. of Singapore
State Street Bank & Trust Company
Great Eastern Life Assurance (M) Bhd Par 1
PAMB for Prulink Equity Fund
Tan Sri Lim Kok Thay is appointed as Chairman and Chief Executive of Genting Malaysia Bhd. He is the major shareholder of Genting Malaysia Bhd via his stakes in Genting Bhd. His son, Lim Keong Hui is the Deputy Chief Executive of the company.
Latest Acquisitions: Empire Resorts, Inc. Empire Resorts Inc is a NASDAQ-listed gaming and entertainment that is based in the United States. It owns Resorts World Catskills, a casino located in a 1,700-acre site at Sullivan County, New York that consists of a 332-all suite hotel, 1,600 slot machines, and 150 live table games. It also owns and operates the Monticello Casino and Raceway.
On 5 August 2019, Genting Malaysia Bhd has announced that it would be acquiring 46% of common stock equity from Kien Huat Realty III Ltd for US$ 9.74 a share, thus, amounting to US$ 128.6 million or a total of RM 538.8 million. Subsequently, as of 14 November 2019, Genting Malaysia Bhd has completed the transaction and would be delisting Empire Resorts inc from NASDAQ.
Material Events after Q2 2019 (30 June 2019) As of 25 July 2019, Genting Malaysia Bhd has entered into a settlement agreement with Fox Entertainment Group LLC, Twentieth Century Fox Film Corporation, Twenty First Century Fox, Inc. and The Walt Disney Company to fully resolve their disputes against each other and to agree to dismiss all claims and counterclaims between them in the pending legal action in the United States District Court. A part of the settlement agreement includes the parties entering into a Restated Memorandum of Agreement dated 25 July 2019 granting Genting Malaysia Bhd a license to use certain Fox intellectual parties.
Valuation Ratios As of 20 November 2019, Genting Malaysia Bhd is trading at RM 3.23 a share. It is not possible to calculate its P/E Ratio as it has incurred a loss in 2018. Genting Malaysia Bhd has reported to have RM 3.12 in net assets per share. Thus, its P/B Ratio is 1.035, which is below its 10-year P/B Ratio average of 1.48. In 2018, Genting Malaysia Bhd has paid out a total of 11.0 sen in ordinary dividends per share (DPS). Thus, its current dividend yield is 3.41% per annum.
VIA’s Verdict Genting Malaysia Bhd has experienced a drop in stock price lately. This is due to its huge impairment loss incurred for uncertainties in its investments in Tribe’s land status in the United States. If we look backwards, we would find that the company has not been delivering growth in terms of profits since 2011 despite venturing into a number of overseas operations.
So it seems that the market might have lost confidence in management’s ability to grow via their overseas investment strategy. Unless the company starts showing some results, investors might not be interested in its stock anytime soon.
Financial Content Machine. Dividend Investor. Produced 450+ Financial Articles featured in KCLau.com in Malaysia and the Fifth Person, Value Invest Asia, and Small Cap Asia in Singapore. Regular Host and Presenter of a Weekly Financial Webinar with KCLau.com. Co-Founded DividendVault.com, an online membership site that empowers retail investors to build a stock portfolio that pays rising dividends year after year in Malaysia and Singapore.