The View From Genting Bhd

The view from Genting Bhd
Monday. October 29, 2007

Genting is expected to be focused solely on gaming as it seeks to become a global company. Management would make its decision on this based on considerations of financial impact and market valuations rather than sentiment.

SHELDON Adelson is the third wealthiest American this year, behind Warren Buffett and Bill Gates, according to Forbes magazine.

Adelson heads the relatively new casino group, Las Vegas Sands Corp, which has a market value of US$47.8bil (RM164bil). The group was formed in 1988 when he bought the Sands Hotel and Casino in Las Vegas, which was listed at the end of 2004, much later than Genting Bhd which was listed on Bursa Malaysia decades ago.

Sands Corp's share price has performed, tripling from US$40 a share at the end of 2005 to US$130 currently. Adelson expanded the group into Asia, developing the Sands Macau Casino and the Macau Venetian Casino, and an integrated resort (IR) in Singapore.

The Sands group is solely engaged in casino-related activities that have now spanned into the high growth markets of Asia. Analysts expect and await a similar profile to be adopted by Genting. They believe the management at Genting is willing to consider such a corporate revamp although no decision on this has been made.

Genting would be rewarded by the market if it chose this course of action. The valuation of its stock is now just about half that of Sands Corp, and certainly significantly less than that of other big gaming groups.

In recent years, its subsidiary Genting International Ltd (GIL) acquired Stanley Leisure plc to become the biggest casino operator in Britain, and won a licence to develop an IR in Singapore. It can claim to be a global gaming group.

But the group had also diversified in the fashion of Sime Darby Bhd. Analysts expect Genting may dispose all businesses other than those related to gaming.

That would involve a sale of its stakes in plantation and property outfit, Asiatic Development Bhd, its independent power producer (IPP) group and Genting Oil & Gas Ltd.

All these subsidiaries would fetch a rich price for Genting. If management were undecided on disposals, it would be because it does not want to forego the cash flow from the plantation and power subsidiaries.

Should Genting take the course to be engaged purely in gaming, the scenario that eventually unfolds could be to de-layer the whole group by taking private Resorts World Bhd and GIL, of which Genting currently owns about 49% and 53% respectively.

Resorts World has a market value of RM22bil, a big company to take private. Over time, however, the market is likely to give a richer stock valuation to Genting, positioned as a global gaming group, compared with Resorts World which largely operates the casino on Genting Highlands.

Generally, companies with a global exposure tend to have a higher market valuation than one that mainly confines its business in Malaysia. Hence it may be possible for Genting to offer a share swap with Resorts World in an exchange that enhances the earnings per share of the former.

Alternatively, Genting could dispose of all its non-gaming businesses, which some analysts estimated would raise about RM10bil cash, and use that money to buy out the rest of Resorts World and GIL.

It is known that Genting aspires to be a global gaming company. As it plots a course towards that objective, it makes sense for it to be fully focussed in gaming so as to be rewarded by the market for its global ambitions.

http://biz.thestar.com.my/news/story.asp?file=/2007/10/29/business/19287447&sec=business