KUALA LUMPUR, Feb 12 — The management of Genting Malaysia says it is cautious on the outlook in the near term, but remains positive on the longer term prospects of the leisure and hospitality industry.
In Malaysia, Genting Malaysia’s efforts to transform Resorts World Genting under the Genting Integrated Tourism Plan are progressing well, it says.
The Arena of Stars, which was closed earlier this year for upgrading and maintenance works, has recently re-opened.
The 1,300 rooms under the Tower 2 annex development is on track to open by mid-2015. Despite all the current on-going works at RWG, Genting Malaysia expects its core business to remain resilient.
In the UK, the group delivered encouraging results in Q3FY14, through improved performance in the home markets division which primarily cater to the domestic players, and a sharp turnaround in results from the international markets division.
The group remains cautious over the volatility in the international markets division.
But it sees an improving trend in the home markets division.
The development of Resorts World Birmingham is on schedule, with an anticipated opening in mid-2015.
In the US, Resorts World New York City continues to grow its business and maintain a majority market share of the statewide gaming revenue in New York.
At Bimini, the accessibility to the resort is now improved with the recent opening of the deep water jetty.
With the expected opening of the new luxury hotel by the end of the year, the group is confident that it will continue to grow visitor numbers to Bimini.
The company just announced earnings for Q3FY14:
Revenue: +5 per cent to RM2.23 billion
Profit: -18 per cent to RM266.1 million
Cash flow from operations: RM949.8 million vs RM1.45 billion
Dividend: 0.0 sen per share vs 0.0 sen per share
The management of Genting Malaysia said its revenue was higher due to higher revenue from the casino business in the UK, which was mainly contributed by higher hold percentage of its international markets segment and overall higher volume of business.
But this positive factor was offset by the poorer performance of its businesses in Malaysia and the US.
In Malaysia, it saw lower revenue from the leisure and hospitality business mainly due to lower hold percentage in the premium players business.
This is despite overall higher volume of business.
Also, it recorded lower revenue from the leisure and hospitality business in the US and the Bahamas mainly due to lower revenue contribution from Resorts World Bimini in the Bahamas.
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1. Can it depend on more consistent UK contributions while Malaysian operations are weak?
For Q3FY14, Genting Malaysia’s UK operations propped up the group’s results by reporting revenue of RM674.7 million, up 66 per cent from RM407 million a year ago.
Its EBITDA of RM145.6 million in Q3FY14 was more than double its gain of RM40.5 million in Q3FY13.
The good performance was attributed to higher business volume and higher win percentage at the group’s London casinos.
That was year on year.
Q3FY14 for its UK operations saw an improvement over Q2FY14, when its revenue dropped year on year by 41 per cent to RM301.5 million, and it made a loss of RM65.9 million compared to the profit of RM73.1 million in Q2FY13.
Genting Malaysia said its UK operations saw a lower hold percentage and also lower volume of business in its London casino operations.
The UK operations performed well for its Q1FY14.
We went back to the records and found that based on yearly revenue, Genting Malaysia’s UK operations have been improving since FY11, when its UK segment started contributing meaningful revenue to the group.
In fact, revenue has been increasing steadily over the past three full years — from RM1.15 billion in FY11 to RM1.59 billion in FY13.
Profit (EBITDA) is also increasing, from RM154.1 million in FY11 to RM230.3 million in FY13.
Although the UK operations are improving on the whole, it sometimes reports bad quarters, like for this financial year so far, it had a bad Q2FY14 when its revenue dropped by 41 per cent and it made a loss.
For FY13, its profit decreased in two quarters — Q1FY13 and Q2FY13.
And further back in FY12, it relied only on a great quarter in Q2FY12 to prop up its results, when revenue was up by 2.5 times to RM472.9 million, and profit was RM 130.2 million compared to a loss of RM7.7 million a year ago.
Other than that, its profit decreased in two quarters and it made a loss in Q3FY12.
With Genting’s Malaysian leisure and hospitality segment reporting weak results due to the revamp it is undergoing, can it depend on more consistency in its UK operations to prop up its earnings?
2. What is going on with Resorts World New York’s payroll?
Resorts World Casino New York City has been reporting lower EBITDA due to higher payroll costs for every quarter this financial year. This was not the case last FY.
Why is its payroll such a drag on its business? What is it doing about it?
3. Is there a risk of upcoming casino Montreign being too near to Resorts World NY?
It was announced recently that the New York Gaming Facility Location Board did not select Genting Malaysia as one of the winners of the upstate New York commercial casino licences.
This is despite Genting Malaysia making two bids for Sterling Forest Resort and Resorts World Hudson Valley, both located in Orange County.
Both were rejected, and there was no award for a casino in Orange County as the board said it would hurt gambling sites already built close to New York City.
But the winner of the Catskills/Hudson Valley region is Montreign Resort Casino, which Maybank believes will negatively impact Genting Malaysia’s Resorts World New York City as they are just 2.5 hours away by road from each other.
Montreign Resort Casino will be built by Genting Group’s Lim family controlled, Nasdaq-listed Empire Resorts Inc.
With its bid for a casino in upstate New York rejected, Genting currently has a presence in New York only through the Aqueduct racino (race course and casino which operates slot machines) in New York.
The racino does not operate table games.
Will there be a risk of the Montereign eating into the racino’s customers?
How will the Genting group deal with the interests of its upcoming casino, and the racino?
4. Is Resorts World Casino New York City going to start facing competition from New Jersey?
Soon the racino might face an upcoming threat from casinos opening up in northern New Jersey by 2016.
According to an article in September by Crain’s New York Business, that will be when a five-year moratorium on building casinos outside Atlantic City ends in New Jersey.
The delay was meant to give the gambling resorts in Atlantic City a chance to recover after casinos closed due to the oversaturation of casinos in the area.
As the end of the five years approach, industry players like Sheldon Adelson have expressed interested in building a casino in the northern New Jersey Meadowlands if the state allows the expansion of gambling beyond Atlantic City.
How will the expected new casinos in New Jersey affect Resorts World Casino New York City?
5. Is the US casino industry in danger of being saturated?
One trend of the gaming industry in the United States is the quick pace at which the states have been awarding casino licences as they compete for tax dollars and to generate jobs, and how the newer casinos in the states are taking away business from the older ones.
According to the November article in The New Yorker, in 1978, only Nevada and New Jersey had commercial casinos, but today casinos can be found in 24 states.
In 2004, Pennsylvania authorised 14 casino licences and by the end of 2007, the first full year Pennsylvania casinos were in operation, they had taken in a billion dollars and paid US$473 million (RM1.7 billion) in taxes to the state.
This, however, led to the start of the decline of the gambling industry in neighbouring Atlantic City.
In 2012, Pennsylvania casinos generated US$3.16 billion in revenue, surpassing New Jersey as the country’s No. 2 market.
In 2008, Maryland authorised casinos and by 2013, neighbouring Pennsylvania reported its first decline in earnings.
The new competition in Maryland compounded the decline in Atlantic City.
Kansas recently welcomed its first casinos, and this caused Colorado, Indiana, and Missouri to experience downturns.
Does Genting Malaysia think the US casino industry is becoming saturated? How will it navigate the US casino market with this pattern in mind?
6. How will completion of deep-water jetty help Resorts World Bimini results?
Genting Malaysia recently announced that Resorts World Bimini has recently completed its deep-water jetty, which will allow larger ferries to disembark directly on the island.
Before the jetty was built, Resorts World Bimini had to contend with limited service caused by weather conditions.
It also had to tender passengers, meaning passengers had to board a smaller boat, or tender, from the Bimini Superfast ferry to get to the island through the bay side.
This was a time-consuming process that cut short the amount of time the passengers could spend on the island.
It is also dangerous for the passengers to get on and off the tender during bad weather, when the seas are rocky.
According to the prime minister of the Bahamas, Perry G. Christie, the cruise ferry is now looking to attract some 1,000 people per cruise six days a week, which will create an increased economic impact on the resort.
The completion and operation of the deep-water jetty means better revenue for Resorts world Bimini.
Considering the jetty started operating in September, will we see improved revenue by next quarter? How much more revenue does it expect coming in?
7. Can the deep-water jetty be the catalyst to help Resorts World Bimini break even in FY15?
With the completion of the deep-water jetty, RHB is hopeful that Resorts World Bimini will break even in Q3FY15.
CIMB also expects Resorts World Bimini’s losses to taper off and to break even in FY16.
Resorts World Bimini is building a new 307-room hotel which should be fully open in mid-2015.
For now, the deep-water jetty is the only catalyst.
After about a quarter of performance, does Resorts World Bimini think it is able to help it break even in FY15?
8. How will GST implementation affect FY15 earnings?
The management of Genting Malaysia has confirmed that its Malaysian casinos will be subjected to an additional six per cent GST on top of the 25 per cent gaming tax that the group is currently paying on its casino winnings.
There will be no reduction in gaming tax.
This has prompted analysts to cut their forecasts for FY15.
Public Bank has said it is reducing its earnings forecast for FY15-16 by 8 per cent-10 per cent (from an EPS of 25.9 sen in August to 23.7 sen in its November report).
While RHB has reduced its FY15-16 EPS forecasts by 7.1-9.2 per cent.
Management has guided to analysts that its revenue and adjusted EBITDA will be affected by the GST implementation, which will take effect in April.
Does it have numerical forecasts for how much lower its earnings will be due to GST?
Will its Genting Integrated Tourist Plan help to offset the burden of the GST?
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.
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