Genting
Singapore
reported net profit and revenue dropped due to a drop in mass-market gaming
revenue. There are downside risks to Genting's near-term
earnings prospects with its major earnings contributor, Genting
Singapore
, reporting a disappointing second quarter profit.
Furthermore, investors' interest in Genting's overseas ventures has subsided somewhat with the postponement of bills to liberalise Miami 's gaming laws to 2013. Genting, through Genting Malaysia Bhd, which had acquired 13.9 acres of prime freehold waterfront property in downtown Miami for US$236mil in May 2011, was forced to scale back on plans for a US$3.8bil mixed development project after Florida state legislators had second thoughts on a bill to liberalise gambling earlier 2012.
There were potential regulatory uncertainties associated with the proposed amendment to the Casino Control Act by the Singapore government. The amendment included limiting Singaporeans' visits to both casinos on the island besides heavier financial penalties. Genting Singapore to account for 46% of Genting's earnings before interest and taxes.
Although Genting offers indirect exposure to both Genting Singapore and Genting Malaysia, do not foresee its holding company discount to narrow persistently in the near future, given the lack of urgency for management to restructure its non-gaming portfolio.
Furthermore, the rising volatility in the equity market does not favour asset reflation play while there is also increase risk premium as the general election draws closer.
The Genting is expected to record a one off net gain of about rm1.9 billion from the proposed sale of Genting Sanyen contributing to an increase of about 52 sen to its consolidated earnings per share for the current financial year. However, following the disposals, the earnings contribution from its power division will be reduced significantly because although the group has other power plants such as in china, its most profitable plant is in Malaysia .
Furthermore, investors' interest in Genting's overseas ventures has subsided somewhat with the postponement of bills to liberalise Miami 's gaming laws to 2013. Genting, through Genting Malaysia Bhd, which had acquired 13.9 acres of prime freehold waterfront property in downtown Miami for US$236mil in May 2011, was forced to scale back on plans for a US$3.8bil mixed development project after Florida state legislators had second thoughts on a bill to liberalise gambling earlier 2012.
There were potential regulatory uncertainties associated with the proposed amendment to the Casino Control Act by the Singapore government. The amendment included limiting Singaporeans' visits to both casinos on the island besides heavier financial penalties. Genting Singapore to account for 46% of Genting's earnings before interest and taxes.
Although Genting offers indirect exposure to both Genting Singapore and Genting Malaysia, do not foresee its holding company discount to narrow persistently in the near future, given the lack of urgency for management to restructure its non-gaming portfolio.
Furthermore, the rising volatility in the equity market does not favour asset reflation play while there is also increase risk premium as the general election draws closer.
The Genting is expected to record a one off net gain of about rm1.9 billion from the proposed sale of Genting Sanyen contributing to an increase of about 52 sen to its consolidated earnings per share for the current financial year. However, following the disposals, the earnings contribution from its power division will be reduced significantly because although the group has other power plants such as in china, its most profitable plant is in Malaysia .
The
disposal would also lower Genting Bhd’s earnings but existing the
Malaysian power business removes a future overhang. If does look like the group still wants
to keep its international assets. It clinched a 660MW PPA in
Indonesia to complement its
India and china interests.
The potential divestment is a reaffirmation of Genting’s direction, becoming a purer global gaming entity, or a conglomerate that is more appreciate of sustaining its level of returns rather than getting bogged down in businesses that are increasingly marginalized.
The potential divestment is a reaffirmation of Genting’s direction, becoming a purer global gaming entity, or a conglomerate that is more appreciate of sustaining its level of returns rather than getting bogged down in businesses that are increasingly marginalized.
The money will
likely be put to good use in overseas power projects or into more gaming
opportunities. The prospect of a special
dividend was unlikely given that the cash proceeds would be placed in bank
deposits and money market instruments for future use. Genting's cash pile was
“once again swelling up in anticipation of acquisition
opportunities”.
Genting raised RM2bil in medium term notes towards
end-May 2012 and the group remains vigilant for new business opportunities,
especially in the gaming sector. Industry watchers believe the gaming giant
could be putting money away to expand its power businesses in
India , China
and Indonesia .
In July 2012, Genting announced its maiden foray into
Indonesia 's
energy sector by signing a 25-year PPA with the state-owned electricity company
there to build and operate a 660MW coal-fired power plant in Banten, west Java,
estimated to cost RM3.2bil.
With the additional cash in hand, the group could
explore other potential power assets abroad as it aims to own a total effective
capacity of at least 3,000MW.
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