Genting ... the Edge

KUALA LUMPUR: Genting Bhd and its 48%-owned associate Resorts World Bhd seem to have fallen out favour amid worries that the tough operating environment would put the group’s profitability to the test.

Concerns on earnings growth is heightening given that Genting’s international business, which was initially expected to boost its earnings, does not fare well.

Genting’s share price plunged to RM5.20 — the lowest since November 2006 — last Thursday from its peak of RM9.25 recorded in November last year. It finished at RM5.35 yesterday.
The index-linked heavyweight has slid 32% compared 11.3% fall on the Kuala Lumpur Composite Index year-to-date.

Its local casino operator Resorts World shares also came under persistent selling pressure. The gaming stock has tumbled 27% so far this year. It closed at RM2.82 yesterday.
Besides concerns on a slowdown in visitor arrival to the hilltop casino, Resorts World’s minimal dividend payment has kept a lid on its share price.

Citi Equity Investment Research said investors were getting “impatient with the low-payout strategy and were beginning to accord less value to its cash reserves”.
“Resorts World is hoarding too much cash for too long. Unless there are alternative plans, we believe investors would prefer management to start raising dividend significantly,” it commented.

Resorts World’s management did make efforts to pay a higher dividend, however, Citi Equity Investment Research said the payout as a percentage of net profit has not progressed much.
“In the last few years, its dividend payout has been hovering just above the 30% level, translating into a dividend yield of just over 2%, a level considered miserable given Resorts World’s cash flow generating ability,” the research outfit said.

Resorts World’s cash pile is expected to balloon to more than RM4 billion by year-end after it sold its equity interest in Star Cruises Ltd and Genting International Ltd.

In addition, the windfall tax that was slapped on independent power producers recently triggered concern that the gaming industry might have to contend with higher tax as the federal government looked for ways to expand its coffers, analysts said.

Analysts said the high foreign shareholding placed the share price performance of Genting and Resorts World at the mercy of the foreign managers, who had unloaded their investments on Bursa Malaysia recently due to political uncertainties and inflationary fears.
Furthermore, the valuations of the global gaming stocks were hit by competition concerns as more casinos were sprouting and tighter regulations such as the ban on smoking in casinos in the UK.

Thus, foreign institutional investors were reluctant to pay the hefty premium, which Genting and Resorts World used to command previously, they said.
Its upcoming integrated resort in Singapore is said to be plagued by costlier building materials, besides more expensive labour due to inflation.

“The shares (of Genting) have been sold down a lot, and longer-term issues have been priced in,” said OSK Research Sdn Bhd, which recommends the stock to clients.
The value of the project, initially estimated at S$5.2 billion (RM12.4 billion) was revised to S$6 billion after the decision to add six new attractions to the resort, and to make contingency provisions, according to Genting’s website.