Introduction
Genting Resort was the brainchild of the late Tan Sri Dato Seri (Dr.) Lim Goh Tong, spent all he had in his life without earning an income to develop and expand Genting Highlands without any help from the government until it was completed and opened on 8 May 1971. Now, it is one of the most successful Casino resorts in the world and a primary tourist attraction for Malaysia.
Genting is now a group and has diversified into many other industries such as plantations, property, paper, power generation, oil and gas exploration and cruise boat industries. Distinctive names namely Asiatic, Genting Sanyen and Star Cruises are part of Genting Group. Now Genting is being managed by his son, Tan Sri Lim Kok Thay.
Genting Resorts acquired the entire gaming, hotel and resort-related operations from Genting Malaysia in a restructuring exercise in 1989. Known as Resorts World Genting now, the resort offers six hotel with 10k rooms, over 50 fun rides, 170 dining and shopping outlets, mega shows, business convention facilities and endless entertainment - all under one roof. Resorts also owns and operates two beautiful seaside properties named Awana Kijal Golf, Beach & Spa Resort in Terengganu and Awana Porto Malai in Langkawi.Is Asia's leading leisure & hospitality company with a market capitalisation of RM17 billion.
Fundamental
1. Does the company have an identifiable durable competitive advantage?
It operates using a traditional business model where game is emphasized and little attention is paid to the environment, this means cramped and smoky casinos. The model has suited regular patrons all these years (72% of the visitors are day-trippers, 28% are hotel guests from AR 2009). This suggest that the resort is catering to gamblers. The younger crowd now have different taste & demands such as fine dining & Western culture. This is something to think about.
2. Do you understand how the product/service works?
Gamblers will emerge whenever there are dice and playing cards. Greed is part of human and will be part of our lives. Casino (Cash In Now) serves usually three distinct markets which are premium a.k.a high rollers, mid market and general gaming. For the super-rich, not-so-rich folks and for folks who just want to have fun (theme parks, entertainment, shopping and MICE). MICE stands for Meetings, Incentives, Conventions, Exhibitions & Events. To name a few, companies like Prudential and MAA have been using Resorts.2. Do you understand how the product/service works?
3. What is the chance that it will become obsolete (KO) in the next twenty years?
Zero for obsolete. More competitive would be more suited for the next twenty years which is certain. I was also quite shocked to know that there are 60 casinos of different sizes just 3.5 hours away from Kuala Lumpur & 17 more alone in South Korea. This number is still growing as we all know that Asia is a sweet spot for economic growth for emerging economies like Vietnam, China, India and recently Indonesia is coming back. The last three countries has sizable population to take note.
Zero for obsolete. More competitive would be more suited for the next twenty years which is certain. I was also quite shocked to know that there are 60 casinos of different sizes just 3.5 hours away from Kuala Lumpur & 17 more alone in South Korea. This number is still growing as we all know that Asia is a sweet spot for economic growth for emerging economies like Vietnam, China, India and recently Indonesia is coming back. The last three countries has sizable population to take note.
4. Does the company allocate capital exclusively in the realm of its expertise?
Yes, Genting Resorts only spends its capex on leisure and hospitality business but has diversified beyond the borders of Genting Highlands, for example Star Cruises Limited and the Awani Resorts in Terengganu and Langkawi.5. What is the company's financial history and status?
- Why a big dip in 2000 (1999 finances)? Due to goodwill written off from subscription of Star Cruises shares of RM1bil. Goodwill means buying a stake of another company at more than fair value or book value.
- Net Profit Margin is averagely in the 30% figure. Another good factor of Genting is that they have consistent high occupancy rates of 77% to 90% from 2003 to 2009 which means they are truly maximizing their assets for profit!
- Return of Equity which means how much shareholders get in return of investment is in the 20% range over the last 10 years.
- Revenue Growth Rate has been bumpy. Attributable to Visit Malaysia in 2007, disposal & impairment losses of Star Cruises and etc. Nevermind that, to simplify I'm looking at growth rate over 10 years of 6.88% and over the last 5 years is 12.28% which shows improving performance. This kind of growth rate value is also known as CAGR - compounded annual growth rate.
- Earnings Per Share & Dividend Per Share is on the rising trend over the past 10 years. GENM's dividend payout policy has been in between 20% to 30% per share earnings. Talk about being conservative, where else do they use their money then? Read on.
6. Is the company conservatively financed?
Balance sheet is VERY IMPRESSIVE. No debts and coffers filled with ~RM5bil of which RM3bil in bank balances and RM2bil in money markets (2009).
7. Is the company actively buying back its shares?
Yes, initiated since July 2007 and to date total treasury shares (shares bought back) stands at 208 million units. Resorts has been paying RM710mil for buy backs for the last three years even at times of financial crisis because they have tremendously strong cash balance in hand.
8. Is the company free to raise prices with inflation?
I did not find any info. Thus I took the liberty of using visitor growth rate vs revenue growth rate over the last 5 years. CAGR of visitors at 5% where else CAGR of revenue is ~13% tells us that revenue actually grows faster than the number of visitors. RWG serves the Malaysian market which is 85% of their total visitors & people are willing to spend more every year so cost (with per year our national inflation) does not seem to pose any problem with spending.
9. Are large capital expenditures required to update plant and equipment?
Balance sheet is VERY IMPRESSIVE. No debts and coffers filled with ~RM5bil of which RM3bil in bank balances and RM2bil in money markets (2009).
7. Is the company actively buying back its shares?
Yes, initiated since July 2007 and to date total treasury shares (shares bought back) stands at 208 million units. Resorts has been paying RM710mil for buy backs for the last three years even at times of financial crisis because they have tremendously strong cash balance in hand.
8. Is the company free to raise prices with inflation?
I did not find any info. Thus I took the liberty of using visitor growth rate vs revenue growth rate over the last 5 years. CAGR of visitors at 5% where else CAGR of revenue is ~13% tells us that revenue actually grows faster than the number of visitors. RWG serves the Malaysian market which is 85% of their total visitors & people are willing to spend more every year so cost (with per year our national inflation) does not seem to pose any problem with spending.
9. Are large capital expenditures required to update plant and equipment?
No, Resorts is modeled on a traditional business and does not spend a lot of capex to build nicer hotels and facilities. There is no new room capacity envisaged following their most recent sharing in Investors Forum in September 2009.
Discounted Cash Flow Analysis
Discounted Cash Flow Analysis
DCF treats a company as a business rather than just a ticker symbol and a stock price which most blind people think that price only matters. It requires you to think through all the factors that will affect the company's performance and gives you an appreciation for what drives stock values. Go to Investopedia.com and learn.
I have estimated that GENM's revenue growth rate is at 8% averagely, with 65% operating cost margin, 25% corporate tax, 2% re-investment but a growing working capital in tandem with revenue growth at 8% for the next 5 years. Having computed all these in my opinion it is fair to buy..
You would probably ask why the start of the drop in 1999 and the rise and fall in 2007-2008. Asian Financial Crisis in 1999 and the peak of the bull run at the end of 2007 before some profit taking takes place by smart investors and then the great collapse as we all know it. This is exactly why an intelligent investor must seek buying opportunities during a collapse (bear run) OR to buy at a discount rate from the fair value to ensure you don't overpay for it.
At RM1.30 in between 2001 to 2002 (because nobody would know what's the lowest price you can buy), the stock would have appreciated to RM2.80 in 2010 which equates to 9% returns per annum, not accounting dividend reinvestment which would give you more than a 10% figure. This assumes that you hold the stock through the 2009 financial crisis. Why would you sell anyway? Do you think a stable and rich cash company like Genting will ever see its share price drop to less than RM1 (because Genting Groups has a 50% stake in Resorts)?
GENM at RM2.20 to RM2.65 for ~15-13% discount rate.
You would probably ask why the start of the drop in 1999 and the rise and fall in 2007-2008. Asian Financial Crisis in 1999 and the peak of the bull run at the end of 2007 before some profit taking takes place by smart investors and then the great collapse as we all know it. This is exactly why an intelligent investor must seek buying opportunities during a collapse (bear run) OR to buy at a discount rate from the fair value to ensure you don't overpay for it.
At RM1.30 in between 2001 to 2002 (because nobody would know what's the lowest price you can buy), the stock would have appreciated to RM2.80 in 2010 which equates to 9% returns per annum, not accounting dividend reinvestment which would give you more than a 10% figure. This assumes that you hold the stock through the 2009 financial crisis. Why would you sell anyway? Do you think a stable and rich cash company like Genting will ever see its share price drop to less than RM1 (because Genting Groups has a 50% stake in Resorts)?
What Do I Think?
The Pros
Damn rich company. Share buy back programme (helps in increasing share price). The only licensed casino operator in Malaysia. RWS won't bite Genting Malaysia as it serves a different market. Still looking for opportunities abroad to diversify income stream because too rich ma.
The Cons
Competition is stiffing up. Gaming landscape is changing so the question is, will younger people still be interested in traditional casinos?
Last say, I would be standing on the sidelines for now seeing that GENM is quite an active stock during trading, a great buying opportunity will come when the market is actually down. The price it is at right now is fairly valued (anything above RM3.20 is overvalued) but it is still better to buy at a certain discount rate at least in the 10% range as risk compensation.
GENM is a good stock but not exactly a great one. Why? My portfolio aims for at least 15% returns per annum and GENM is not really suiting me lately. I could one day diversify and put some allocation into this stable & entrenched gaming company. I'm still young ma so find more risk lor if there is any, what I call an educated risk.
Damn rich company. Share buy back programme (helps in increasing share price). The only licensed casino operator in Malaysia. RWS won't bite Genting Malaysia as it serves a different market. Still looking for opportunities abroad to diversify income stream because too rich ma.
The Cons
Competition is stiffing up. Gaming landscape is changing so the question is, will younger people still be interested in traditional casinos?
Last say, I would be standing on the sidelines for now seeing that GENM is quite an active stock during trading, a great buying opportunity will come when the market is actually down. The price it is at right now is fairly valued (anything above RM3.20 is overvalued) but it is still better to buy at a certain discount rate at least in the 10% range as risk compensation.
GENM is a good stock but not exactly a great one. Why? My portfolio aims for at least 15% returns per annum and GENM is not really suiting me lately. I could one day diversify and put some allocation into this stable & entrenched gaming company. I'm still young ma so find more risk lor if there is any, what I call an educated risk.
1 comment:
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