KUALA LUMPUR, Oct 23 — The management of Genting Malaysia remains positive on the longer term outlook for the leisure and hospitality industry.
In Malaysia, where Resorts World Genting is undergoing an upgrade under its Genting Integrated Tourism Plan, the resort's the outdoor theme park, Arena of Stars, and certain sections of the First World Plaza, have been closed.
The upgrading works for the Arena of Stars are expected to complete by November.
Despite the closures, Genting Malaysia expects its core business to remain resilient and is developing plans to boost visitor numbers to Resorts World Genting.
It will also try to grow its mid and premium core business segments.
Genting Malaysia said the UK economy is showing signs of recovery in the first half of 2014.
It wants to grow its premium players business and it expects higher volumes to mitigate the volatility of the high roller market at the London casinos.
It is also continuing the re-vitalisation of its business in the domestic markets against a backdrop of a broadly flat market.
Construction and development of Resorts World Birmingham continues and it is expected to open in the second quarter of 2015.
In the US, Genting Malaysia said Resorts World New York continues to deliver encouraging results and is growing its market share in the State of New York.
In Bimini, the business operations have yet to reach the expected level with the ongoing expansion of its infrastructure and capacity.
The opening of the deep water jetty and new luxury hotel by end of 2014 will improve accessibility and room capacity.
With these, visitor numbers to Bimini are expected to grow.
Genting Malaysia owns and operates casinos in Malaysia, the US, and the UK.
It is the operator of the tourist resort business at Genting Highlands in Malaysia, which made up nearly 70 per cent of its revenue in FY13.
The company just announced earnings for Q2FY14:
Revenue: -14 per cent to RM1.91 bln
Profit: -45 per cent to RM254.4 mln
Cash flow from operations: RM587.7 mln vs RM1.06 bln
Dividend: Three sen per share vs 3.2 sen per share
Its UK casino business suffered from a lower hold percentage and business volumes at its London casino operations.
Its leisure and hospitality business in Malaysia were hit by a lower hold percentage in the premium players business.
Meanwhile, its operations in the US generated higher revenue due to the commencement of operations at Resorts World Bimini in the Bahamas.
But the group's lower profit was due to lower profit from its Malaysia and UK operations, which were affected by lower revenue.
Its operations in the US also reported lower profit mainly due to operational challenges as a result of the infrastructure and hotel capacity constraints at Bimini which contributed a loss.
Resorts World Casino New York City also recorded a lower adjusted EBITDA primarily due to higher payroll costs.
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1. What is the targeted ratio of mass to VIP customers?
CIMB Research said Genting Malaysia's results show it is more vulnerable to the volatility of the VIP business and its luck factor.
It said “the underlying mass segment at Genting Highlands, although defensive, not surprisingly has been stagnant since the start of this capex programme, which means that the VIP business has had greater leverage and influence on the bottomline.”
Genting Malaysia has been carrying out its Genting Integrated Tourism Plan, which involves spending RM5 bln over 10 years to upgrade and improve overall visitor volumes to its resort in the Genting Highlands.
It is also adding more rooms to accommodate VIP and premium mass customers.
Genting Malaysia is changing the ratio of its VIP to mass segment in Malaysia.
But we do not know the current ratio. What is the targeted ratio? How will it achieve this?
And will this help offset the revenue gap from the VIP segment?
2. Is the demographic in the UK gaming market ready for a shift to mass segment?
Both Genting Malaysia's Malaysian and UK operations are dependent on the VIP business, with both geographic segments hit by lower VIP win percentages in the latest quarter, according to AMMB Securities.
Kenanga Research said in a recent report that it expects the UK operations to continue to see tougher times due to its VIP-centric nature.
With Genting Malaysia shifting its focus to mass premium customers in Malaysia, is the UK demographic appropriate for a shift to the mass segment?
3. Why not reveal its mass and VIP segment results in its earnings reports?
Genting Malaysia does not reveal its mass segment and VIP segment results in its earnings report.
But analysts get access to them.
It usually discusses its financial performance in a more macro way, by talking about its geographic segments.
It does not reveal the information in its annual reports either, as we checked its annual reports for the past three years.
But revealing the results of its VIP and mass segments will enable retail investors to know more about the workings of its casino business.
4. What is the quantitative impact of the 500 rooms being ready ahead of schedule?
Genting Malaysia has said it is adding 1,300 rooms to its resort in Genting Highlands.
It had previously guided that its expansion of 1,300 for its Malaysian operations will materialise only in mid-2015.
But it recently told CIMB that the first 500 rooms of the expansion will be ready by the end of the year for the Christmas period.
How does Genting Malaysia forecast these 500 new rooms to affect its earnings, and how many tables will it add with these rooms to increase its gaming capacity?
5. Why would Bimini company sell land to Genting Malaysia for a lower price and a reduction in its stake in BB Entertainment?
Genting Malaysia announced on 12 September that it is buying a 16.2-acre piece of land in the Bimini Islands, Bahamas, for US$24.6 mln (RM80.4m).
Genting Malaysia intends to build a hotel on the piece of land, which is adjacent to Resorts World Bimini.
It said the new 307-room hotel will increase its capacity for guests on Bimini.
Genting Malaysia is buying the land through a 70-per-cent-owned subsidiary called BB Entertainment Ltd, which owns and operates Bimini Casino in Resorts World Bimini.
The seller is RAV Bahamas, a real estate which owns a 30 per cent interest in BB Entertainment.
BB Entertainment will pay for the purchase through US$12 mln in cash in the form of advances from Genting Malaysia, and by US$12.6 mln by way of credit to RAV Bahamas as a form of equity contribution as a shareholder of BB Entertainment.
Although the transaction for the piece of land is for US$24.6 mln, Genting Malaysia mentions in the announcement that it has been valued at US$37.6 mln by an independent valuer.
But RAV Bahamas is selling the land cheaper to BB Entertainment as it is taking into account the expertise and experience to be contributed by Genting Malaysia given its role as the exclusive manager of the entire resort.
As part of the acquisition, an existing indebtedness of US$66 mln due by BB Entertainment to Genting Malaysia will be capitalised into the paid-up capital of BBEL. With this and following the completion of the acquisition, Genting Malaysia's interest in BB Entertainment will increase to 78 per cent from 70 per cent and RAV’s interest in BB Entertainment will be reduced to 22 per cent from 30 per cent.
Why would RAV Bahamas sell the land to Genting Malaysia for a lower price and a reduction in its stake in BB Entertainment?
6. When will the new hotel in Bimini to be up and running?
How much will the new hotel cost?
How will Genting Malaysia fund the building of the hotel?
And when will the hotel be expected to be operating?
7. Are Bimini losses on course to stabilising?
According to CIMB in a report in late August, the losses at its Bimini operations should be stabilising, an improvement over the previously discussed risk of spiralling out of control.
Resorts World Bimini started operating on 28 June 2013.
For Q3FY13, it recorded a loss of RM50.4 mln, which widened to RM68.9 mln in Q4FY13.
It managed to reduce its losses to RM51.7 mln in Q1FY14 and it made a loss of RM52.9 mln for the latest quarter.
CIMB expects Bimini to break even by Q3FY15, providing additional leverage to the group's bottom line over the next 12 months.
Is CIMB's forecast for Resorts World Bimini similar to Genting Malaysia's forecast?
8. How will Resorts World Birmingham impact UK operations?
In the UK, Resorts World Birmingham is expected to open in Q2FY15.
Since opening in June last year, Resorts World Bimini has been slow to become profitable due to its many external problems.
One year on and it's still making a loss.
How long will the new UK casino's gestation period be?
9. What if Genting Malaysia doesn't get a casino in upstate New York?
In the US, Genting Malaysia is applying to develop and operate a casino in upstate New York.
Maybank Investment Bank has written that it is “bullish” on Genting Malaysia securing an upstate New York casino licence.
But a decision on its bid will not be made until year end.
Competition in the area will be fierce with a total of four new casinos to be built, in addition to five existing full-scale Native American casinos and nine racinos in the state, according to Public Bank in a report in July.
Public Invest Research agrees that New York is a competitive area and will be even more competitive in the future.
It said in a report in July: “In the northeastern region where New York is located, however, more casinos have been built in the past decade than anywhere else in the country, with more being planned in the next four years, resulting in new casinos cannibalising existing establishments as demand lags behind the surge in supply.”
What if Genting Malaysia does not get approval for a casino in Upstate New York?
Although Resorts World New York contributed positively to the group in FY13, it has been reporting lower profit due to higher payroll costs for the past two quarters.
Can Resorts World New York stand against the competition if the casino bid in upstate New York fails?
We have invited the company to an on-camera interview, and/or to reply to our questions in writing.
At the time of publication we have not received a reply (which is why you are seeing this message).
We will update this report if we do. — Investor Central
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