Genting ... Aug12 ...Continue

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.

Genting Bhd is selling its power generation business to 1Malaysia Development Bhd (1MDB) for RM2.30bil cash consideration as the group seeks to expand and develop its power generation portfolio abroad.

It was selling its entire 97.7% stake in Mastika Lagenda Sdn Bhd, which houses its power assets, to 1MDB. Its 97.7% owned subsidiary Genting Sayen (Malaysia) Sdn Bhd was also selling its freehold and leasehold industrial land where the power plant is located, measuring 3.21m sq ft in Kuala Langat, Selangor for RM38.8mil

Genting Sanyen was one of the first generation independent power producers in Malaysia. Although its power purchase agreement (PPA) is due to expire in 2016, the plant is well maintained and can continue to be operated efficiently beyond 2016. Genting Sanyen has submitted the extension proposal to the Energy Commission.

Genting Sanyen operates the 720MW gas-fired combined cycle power plant in Kuala Langat, Selangor, under a "build, own and operate" basis. The plant started commercial operations in 1995 and is the group's sole power generation asset in Malaysia.

The Genting is expected to record a one off net gain of about rm1.9 billion from the proposed sale, 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 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.