Genting Berhad Dec 2012

Updated Profile
The leisure and hospitality giant now has operations in Malaysia (and has proxy to Resorts World Manila via GENM), Singapore in Sentosa Island, UK being the biggest operator controlling 44 casinos and the USA by opening Resorts World New York in October 2011. It is now looking to expand in Japan and South Korea. Genting is now considered a global major player in the gaming industry. 

Fundamentals

Net profit margin (red) is in line with expectation of 25% to 30%. Revenue jumped from RM9 billion to RM15.2 billion in 2010 and for the year 2010 to 2011 it also grew from RM15.2 billion to RM19.6 billion supported by operations in GENS. This explains the explosion in growth rate (orange). 

5-year average financials comparison (Genting vs Industry vs Sector). Sector refers to Trading/Services while industry is more specific; Gaming. Sector is rather general can be ignored safely but is listed here for reference sake.

#Valuation Ratios
P/E Ratio High Last 5 Yrs: 26.10 vs 51.94 vs 30.48
P/E Ratio Low Last 5 Yrs: 13.58 vs 19.00 vs 9.42
-Genting's PE ratio is reasonably low and is one indicator it is undervalued.  

#Growth Rates
Sales 5 Yr Growth Rate: 24.96% vs 7.57% vs 8.84%
EPS 5 Yr Growth Rate: 13.42% vs 5.52% vs 17.80%
Capital Spending 5 Yr Growth Rate: 49.39% vs 2.40% vs 4.33%
-Explosion in revenue due to GENS as expected.

#Profitability Ratios
Gross Margin 5 Yr Avg: 40.64% vs 55.89% vs 27.11%
Net Profit Margin 5 Yr Avg: 22.96% vs 7.31% vs 6.08%
-Genting's profit margin has been steady between 20% to 30% as evident from my chart above.

#Management Effectiveness
ROA 5 Yr Avg: 7.23% vs 4.63% vs 6.57%
ROE 5 Yr Avg: 12.88% vs 10.32% vs 12.28%
-Genting has better management team vs competitors.

*I skipped Dividends and Financial Strength for the Risks section later.
For more financial comparisons refer to Reuters (click here). For my original posting back in Oct 2010 (click here).

Genting continues to show good value creation on its EPS, however it has not announce a dividend policy yet and prefers to use its fund for in-house expansion (potentially Japan and South Korea).

Discounted Cash Flow Analysis

Projected Revenue Growth Rate: 5% (for 2012) and 8% for the years ahead

Operating Costs: 70%

Corporate Tax: 25%

Capital Expenditures: RM5 billion +3%/year 

Depreciation: RM1.5 billion +3%/year

Working Capital Cost: same as projected revenue growth rate

Discounted Rate: 15% 

Genting's fair value is anywhere between RM12.27 to RM14.27 as such I put it as RM13.22. As long as Genting continues to pump funds into capital expenditure causing high Net Investment (12%), valuation will be slightly hampered. Historically it was a modest percentage of 5 until the company went into high gear expansion mode after the son took over the business.

Technical Analysis

In the near term (3 months) GENTING should be bullish unless it challenges the support line at RM9.15. Having said so their financial year reporting for 2012 might has some impact on the trend, we will see.

Investor Risks
#1 Macau casinos (all six big boys) are entering their 2nd phase of expansion and this time encroaching into the mass market as the lucrative VIP market saw a marked decline in both Macau and Singapore. Because Macau has more casinos compared to Singapore it has more appeal.
#2 Monetary Authority of Singapore is continues to allow gradual appreciation of the Sing Dollar to combat inflation making it more expensive for lodging and gaming in the city state.
#3 Genting is looking to further expand in Japan and South Korea and has made those plans public. No dividend policy is expected to be announced and the potential for higher gearing is also expected. DE ratio currently is manageable at 0.80 down from 0.97 back in 2009. 

Conclusion
Singapore will continue to count on high tourist numbers to drive consumption within the country. This is business as usual for them and having the same interest will bode well for Genting. Genting Singapore is now the main revenue contributor for the group having almost a 50% share of it and its performance is to be closely watched. With the company's estimation of an increase of 1 million tourist to RWS for 2013 to 17 million people, revenue is expected to increase. Most research houses (click here) are putting a BUY call on Genting with an average target price of RM10.88 and as mentioned earlier their target price could be hampered by the high capital expenditure Genting is pumping for expansion and will continue for the coming year. Following recent assessments and revised DCF figures Aboi puts GENTING as:

Target price: RM13.22 BUY
Fundamentals: Long Term Outperform (5-year period)
Technical: Short Term Bullish (3-month period)
Risk Level: Medium-High

Disclaimer: The reports, analysis and recommendations in this blog are solely my personal views. I do not link to any investment body or company. As such, I will not be responsible of any of your investment decision. Consult your investment adviser or come to your own conclusions before making any investment decision.

Aboi's Updates for Dec 2012

For those who find it hard to follow I suggest reading through my previous posting on how I am using technical indicators as a trend seeker.

1. First Attempt on Tech Analysis Part 1
2. First Attempt on Tech Analysis Part 2

Bursa has been bearish since the concluded US elections in Nov 4 and the "fiscal cliff" drama that has been unfolding. Up until the recent week things look to be improving as evident from the indicators. RSI indicator has finally broke the 30 and if momentum is supported could break 50 suggesting a true reversal trend. This impeding reversal is also supported by the 10-day EMA to 20-day EMA line, having seen the gap being reduced and if any indication of recovery we could see a crossover next week. Hence for the coming weeks we should look at the Support line for 1610 and Resistance to break at 1645. If things go bad the 2nd support line of 1590 should be taken seriously.

Spent two hours revising my portfolio outlook. Versus my older table I have streamlined it to provide more valuable information (benchmark, DCF fair value, ratings, dividends and basic portfolio information). *Note that the DCF values have been updated since Oct 2012 (in which I will post my re-evaluation articles in the coming weeks). Key updates for this month:

#1 Supermax and Genting continues to market outperform and is still a bargain. 
#2 Undecided to hold or sell Jobst due to an expected weak job market in 2013. Will hold until ex-dividend date Dec 10 and decide to sell by year's end.
#3 Freight is on hold until it appreciates. International trade outlook in 2013 does not look promising due to lack of demand.
#4 Boustead is on hold due to correction in CPO prices now. I am expecting commodity prices (gold as well) to go up higher in 2013 due to expected low interest rates.
#5 Maintain buy on iCap due to huge stock price vs NAV price.
#6 Maintain buy on SIF as bond market would continue to do well when low interest rate is maintained.
#7 Portfolio is on par with benchmark but my target is for it to perform better with a value of RM132,000. 

Trending to lose my goal for this year due to #1. Anyway for the coming weeks I would be looking into getting another or two equities into my portfolio (in event I sell Jobst), one more mREIT and another mutual fund. Cash is king now!! 2013 isn't any better than 2012 so we have to be cautious.

As an extra, my choice of BSDReit (Post) back in Aug 2010 has paid off handsomely as it has been the best performing mREIT in terms of total returns. Other previous articles: MREITs Part 1 and MREITs Part 2

Disclaimer: The reports, analysis and recommendations in this blog are solely my personal views. I do not link to any investment body or company. As such, I will not be responsible of any of your investment decision. Consult your investment adviser or come to your own conclusions before making any investment decision.

The Right Start!

Anata Wang

Young savings account structured very similar to Fixed Deposit accounts hence they provide investors higher interest rates compared to conventional savings account. Nevertheless there are intently designed to discourage withdrawals by imposing minimum withdrawal amounts or lower interest rates applied if withdrawals are made frequently. 

It is never too young to start saving some money and although there are many ways to instill this saving concept, I personally think that opening a child savings account is an important life lesson that any child could possible learn. That is to put money into a bank and let it grow! Some parents would argue that it is better to invest the money in stocks or unit trusts. Certainly there is nothing inherently wrong with this strategy but for small savings simple enough for kids to understand we should look for a savings account for children.

There is no shortage of children savings account in Malaysia and a key difference is the age eligibility which is either less than 18 years old (and in some cases below 12 years old). Other notable key features are:
1. Remember small savings. Hence higher interest rates on the first RM50,000 or RM100,000.
2. Discourage withdrawals. Limited number of withdrawals/month. Limited withdrawal method (OTC only). Lower interest rates applied for frequent withdrawals and in some cases extra charges for each withdrawal thereafter.
3. Cash incentives for academic excellence award. Free personal accident coverage.

Hence forth I have compiled a list of young saving accounts in Malaysia (first taken Personal Money October 2012 issue) and modified it with more useful information. The full spreadsheet can be obtained from this link: Comparison_Junior_Savings_Account_in_Malaysia.xlsx It's better to download it and view using Excel software.

Snippet taken from the spreadsheet. It's too large to fit in a single picture!

Here's my take on the top accounts one should choose.

Must have account for small savings.
AmBank Group - AmGenius. 3.00% interest rate for the first RM50,000. Free PA coverage 5x balance amount, max coverage of RM50k. Interest credited monthly.

OR

RHB Bank - Junior Savings. 3.02% interest rate for the first RM100,000. Free PA coverage 5x balance amount, max coverage of RM50k. Interest credited bi-annually.

Put in minimum amount now or during exam calender year.
OCBC Bank - Young Savers. 2.85% interest rate for the first RM50,000. Just put in minimum amount (check with bank) required to qualify for academic excellence award (UPSR, PMR, SPM and STPM). Account must be one year old so time it correctly.

Maybank - Yippie. 2.90% interest rate for the first RM50,000. Just put in RM1000 into the account to get the free coin box and for the cash incentives for academic excellence award (PMR, SPM, STPM and degree) on the exam calender year. You also get free PA 7x balance amount, max coverage of RM50k.

Alliance Bank - Alliance Save Pendidikan. Just put in RM300 on the exam calender year to qualify for cash incentives for academic excellence award (UPSR, PRM and SPM).

Must have account for large savings:
Affin Bank - Junior Saver. >RM100k 2.85%, >RM500k 3.10%, >RM1mil 3.38%. The best interest rate above savings of RM100k. Free PA coverage 5x balance amount, max coverage of RM50k.

Anata Wang

During the 2008 financial crisis, global banks in the western world collapsed under the strain of ill managed borrowings and many people started to question the security of their savings. Like in any other banks, the money you deposit is never guaranteed and the same applies to banks in Malaysia. Luckily in Malaysia, one can save their money into a regulated bank that is under protection by Perbadanan Insurans Deposit Malaysia (PIDM). PIDM protects your bank deposits and will promptly reimburses you on your insured deposits should a member bank fail and there is no charge for this insurance protection.  Keep an eye out for the logo at your banking institution. 

Note that it only covers protection up to RM250,000 per institution so if you have a million, be sure to spread it across 4 different banks. Remember it is never too young to start saving. A RM300 per month savings for your newborn to the 18th year would have grown into RM87,000 (in which from there you will profit RM22,000 from interest alone!). A right start for his/her tertiary education plus your kid would have appreciated the financial lesson that aboi has taught you.