Genting Malaysia’s resilient casino earnings to boost revenue

KUCHING: Genting Malaysia Bhd (Genting Malaysia) provides a cheaper indirect investment entry option into Genting Singapore Ltd, where Resort World at Sentosa is expected to attract a fair degree of interest upon its opening early next year.OSK Research Sdn Bhd (OSK Research) in a research report cited that earnings growth for Genting Malaysia will be strong going forward coupled with the company’s potential to generate cash via the sale of its non-core assets.
It noted that over the medium term, Genting Bhd’s (Genting) share price will continue to trade at a premium to Genting Malaysia’s share price.

GOOD RENTAL YIELD: The rental income for Wisma Genting of RM1.7 million per month is set to provide Genting Malaysia Bhd with steady revenue contribution and enhance its net profit for financial year 2010.

GOOD RENTAL YIELD: The rental income for Wisma Genting of RM1.7 million per month is set to provide Genting Malaysia Bhd with steady revenue contribution and enhance its net profit for financial year 2010.

Meanwhile, the research firm observed that Genting Malaysia has more capacity to undertake more related party transactions (RPT) up to a total of RM214 million over the next 12 months without getting shareholder’s approval.

It said currently, the group’s RPT totaling RM284 million is equivalent to 2.8 per cent of the group’s estimated financial year 2009 shareholders equity adding that under Bursa Malaysia’s listing requirements, the total aggregate RPT that a company can transact within 12 months period without having to obtain shareholder approval cannot exceed 5 per cent of its shareholders funds.

Other RPT that Genting Malaysia undertook with its holding company Genting are proposed acquisition of 100 per cent interest in Oakwood Sdn Bhd which ultimately owns Wisma Genting for a cash consideration of RM213 million, advances settlement on behalf of Oakwood Sdn Bhd to Genting amounting to RM47 million, proposed acquisition of Genting Highlands Tours and Promotion Sdn Bhd, which owns two parcels of development land in Segambut for RM16 million and advance settlements on behalf of Genting Highlands Tour and Promotion Sdn Bhd to Genting amounting to RM9 million.

In addition, it was reported that Genting Malaysia has acquired Wisma Genting plus two parcels of land in Segambut for a total consideration of RM229 million.

It said Wisma Genting, which has an occupancy rate of 92 per cent commanded an average rental yield above the six per cent threshold level.

Following a company visit, the research firm noted that the acquisition will enable the group to improve the yield on part of its cash reserves.

However, OSK Research observed that the market is gradually losing its patience for Genting Malaysia’s inability to deliver on its acquisition ambitions especially when prices of global casino assets have risen well off the trough over the past six months. The research firm is neutral on Genting Malaysia’s prospects in the near term.

AmResearch Sdn Bhd (AmResearch) was more optimistic about the acquisition of Wisma Genting by Genting Malaysia. It said Wisma Genting has net lettable area of 409,033 sq ft and most of its spaces are tenanted.

It noted that rental income per month is RM1.7 million which translates into RM4.16 on a per sq ft basis. It also observed that Genting Malaysia is the single largest tenant in Wisma Genting occupying eight floors and two basements levels.

The research firm added that earnings contributions from Wisma Genting and properties in Segambut are not expected to be fully significant.

Nevertheless, it noted that rental income from both properties would be about RM18 million annually which would increase Genting Malaysia’s financial year 2010 net profit forecast by 1 per cent to 2 per cent.

It said Genting Malaysia is looking for opportunities to utilise its huge cash reserves adding that the group has invested US$15 million in notes of Wynn Las Vegas and US$50 million in notes of MGM Mirage.

The research firm noted that as at end of September 2009, Genting Malaysia’s net cash amounted to RM5.3 billion. It observed that Genting Malaysia’s healthy balance sheet and risilent domestic centric casino earnings in Malaysia will provide the impetus to boost its future earnings.

AmResearch pegged Genting Malaysia’s share price with a fair value of RM3.40 per share.

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