Monday, September 11, 2006

Genting & Resorts World - The Bigger Picture

Britain's Stanley Leisure agreed on a cash offer from Genting International (listed in Singapore) that values the UK casino firm at 639 million pounds (US$1.2 billion).Genting, which already owned a fifth of Stanley, bought a further 5.3 percent stake on Sunday from its founder and Chairman Leonard Steinberg, the two companies said. Steinberg, who built the group from a single betting shop in Belfast 50 years ago, also gave an irrevocable undertaking to accept the offer and granted Genting a call option on his remaining 5.3 stake.Genting said it now owned or had commitments for 30.5 percent of the shares in Stanley, owner of the high end Crockfords casino in London's Mayfair district. Stanley Leisure and rival London Clubs, nearly 30 percent-owned by Genting, had been in merger talks until last month, when London Clubs agreed a 279-million-pound takeover by Las Vegas-based Harrah's Entertainment. Genting, which had been viewed as a potential bidder for both UK firms, said at the time it was reviewing its strategic options.

Some had previously expected a three-way merger between Genting, London Clubs and Stanley Leisure.Genting's 860 pence-a-share offer on Sunday represents a premium of about 26 percent to the closing price of Stanley's shares the last business day before it announced it had received an approach on Sept. 4.

The move is a very good one for Genting. It is quite pointless to try and build and grow casino business globally as footprints have been made throughout, better to buy established franchises. If one were to look at the casino business globally, it basically taps into the liquidity of the place. Hence it is better to match places with high real estate values and personal earnings with casinos. Small European countries have high earnings and decent real estate prices but the population distribution is fragmented, hence the casinos are smaller and less leveraged. Casinos in UK is a controlled thing and Genting MUST secure either Stanley Leisure or London Clubs because they probably will never surface again unless the new owners are in trouble. To get a controlling foothold in Stanley will propel Genting International as major player in the casino business, especially IF they also get the coveted Sentosa IR project. Then Genting International will only miss out on the Macau strip exposure. Not a bad thing really as capital investment and competition have heated up considerably in Macau now. Back to the high real estate values, it allows for liquidity to be tapped on a personal level. Ask anyone, their highest percentage of net worth usually resides in property. Hence revenue per person to casinos should be match with density per square km, plus high real estate values per sq ft. UK fits the bill very well. It also bodes well that UK has a good sprinkling of Asian faces (highest gaming revenue per person).

What about Japan, good real estate values but no casino to speak of. They usually make their way to South Korea casinos and sometimes the US. One thing which many casinos do not appreciate about Japanese high rollers is they prefer a high level of discreet, individualised, polite, very quiet, little conversation environment - hence Macau is not for them, even the Las Vegas is too glitzy. They prefer some of the smaller European casinos.

Hence things look very rosy for Genting International, but not so good for Resorts World. Bearing in mind Resorts is basically the casino on the hill and the hotels. Growth is constrained by population in malaysia and helped by the fact that it is the sole licensed casino. Resorts World has been hovering between RM11-12 for the longest time but many research analysts put the value of Resorts at RM15-17, only a smart minority pegs it closer to RM9-10. Why am I bearish on Resorts World:

1) Exposure to Malaysian gamblers, minus Malay community, the growth is limited.
2) Failure to recognise that the younger crowds do not like casino games that much.
3) Failure to recognise that casinos are competing for the same gaming dollar as football, horse racing and 4-D. Casino games are closer in characteristics to 4-D, while more gamblers prefer gambling with games that have more variables and/or inside information / edge in analysis / such as football or horse racing - Resorts is limited by that.
4) The Singapore IR projects, the Macau strip - you can bet the high rollers will avoid Resorts World.
5) The company's management still markets the company as a growth company, fergetaboutdit already. The company can save itself by presenting itself as a high dividend yielding company. Start by declaring a target dividend yield or setting aside of a high percentage of profits for dividends. Then you can get RM13-14 a share, futile to think it can go any higher.

p/s Genting Berhad owns 61.3% of Genting International.

Pet Peeve About Genting - I think I speak for the majority of Malaysians when I say that our pet peeve is when Singaporeans pronounce Genting as "Jenting". That is not how you pronounce it!!! I am so sorry guys, its Genting as in "Getaran Jiwa" or "Gerakan" ... OK ... you have been reminded now!

1 comment:

gsg said...

hi, any chance you have take a look at Genting international, do you think it is a buy at current level 33-34ct, before the award of the Sentosa IR?

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