GenM ... Feb11

Genting Malaysia Bhd appears to be expediting its share buy back activities while at the same time committing fresh investment into gaming assets in the US and UK.

As at Feb 8, 2011, total Genting shares retained in the treasury account amounted to 252.95 million shares, which is worth RM870.2 million based on GenM’s price of RM3.44. The number of treasury shares has risen by 21.5% from 208.2 million as at May 31, 2010.

Genting shares retained in the treasury account currently represented about 4.3% of the group’s total issued shares of 5.92 billion shares.

Note that in a filing with Bursa Malaysia on Jan 26 2011, the group had said it “intends to purchase up to a further 340.86 million of its shares (representing approximately another 5.76% of the issued and paid-up share capital) within the next five months (Feb 2011-June 2011).

Such further purchase is expected to cost the group at least another RM1.17 billion, assuming if Genting’s shares doesn’t fall from its current level, and nudge its total treasury shares to the permitted 10% level.

As per Bursa’s listing requirement, a public listed entity generally is not permitted to own shares or hold any of its shares as treasury shares if this results in the aggregate of the shares purchased or held exceeded 10% of its issued and paid-up capital.

Share buybacks can enhance the returns per share of a company. It will be better if the shares are purchased when they are undervalued. Such moves theoretically favour shareholders as earnings and dividends are split among fewer shares.

Observers say Genting will continue to buy back shares in weeks to come. The group has sufficient cash flow to purchase more than 300 million of its shares within five months.

Genting’s decision to buy back shares also enables the group to earn a stronger return on excess cash. Genting’s 30-year contract to redevelop the Aqueduct Racetrack in Ozone Park, New York, has made the group “extremely attractive.”

Genting has been comfortable and actively buying back several tranches (of its own shares) at RM3.20 to RM3.30 levels. With close to RM900 million worth of treasury shares, it could also keep a portion for strategic choices, such as cancelling it or distributing it to shareholders while not discounting Genting declaring interim dividend payment in the first half of FY2011 ending Dec 31.

Genting’s net profit for 3QFY10 ended Sept 30 dipped 6.4% to RM336.41 million from RM359.45 million a year ago on the back of a lower revenue of RM1.2 billion versus RM1.34 billion. It posted basic earnings per share of 5.92 sen in 3QFY10 while net assets per share stood at RM1.96 as at Sept 30.