It is F1 weekend once again. As the third F1 race in Singapore currently gets underway, i sit here reminiscing on my free flow red wine and champagne on the sky suite overlooking the pit during qualifying yesterday. Don't get me wrong, it is not that I desire this kind of life style. It just gives me an even clearer feeling of the 2 tier society which we live in. While people are queuing to buy their $100 souvenirs at the Ferrari booths at each gate, there are people who are only able to afford a $3 plate of chicken rice for themselves and their children. What a wonderful world we live in.
While I was sitting at a table at the Nassim suites last night having dinner, I was totally not paying attention the the F1 practices, Ferrari drive bys and F1 qualifying. I was instead having a good conversation with the CIO of a hedge fund company, discussing our views on the market. The good news is, both of us are in the view that the equity markets are going to go higher while bonds are getting increasingly expensive and irrational.
Funny thing was his view on gold. He said that the investors in gold were placing the wrong bets because there is absolutely no inflation in the market. I could not say I agreed with him. After all he is from Europe and deflation is the key concern over there while we just saw our latest CPI reading come in at 3.3%. But he did say that I was right that the European fears of peripheral defaults were way over blown. (Told you all so). Looks like SVI is right again on the market.
It has been a good week, especially for the smaller cap stocks. A few interesting rumors, especially with Olam being a possible target for the great Loui Dreyfus. Funny isn't it. Olam being one of the companies which I have placed on my "avoid" list of stocks, it came as a shock to me when such an established commodities trading company would show interest in it.
SIA also did something rather interesting, raising money through their bond issue, offering investors a whopping 2.15% coupon for the next 5 years. If our inflation expectations in Singapore is 2-3%, investors are going to be short changed. But guess what? Irrationality is the order of the day. Bonds are just the in thing. IBM and Microsoft are also issuing bonds offering ultra low yields and using the proceeds to buy back their shares. I wonder what a person who has common sense would think of such a move. Bonds are overvalued and Equities are cheap? What do you think?
I have decided to dwell on the FOMC meeting last Tuesday in today's post. The market initially did not know what to interpret from the meeting, with the market dropping slightly for 3 days in a row and after which Friday turned into the inflection point for the market.
Further rally appears likely as the Fed has put a floor under markets, which in turn anticipate another liquidity-fed rally like that of 2009 that may continue despite stagnant fundamentals as cash seeking a home flows in to equities. The implied further debasement of the USD feeds the demand for hard assets, particularly traditional currency hedges like gold and silver. Crude oil also broke through multi-week resistance despite the highest ever recorded US inventories. Such was the effect of the FOMC’s implication of new QE in the coming months. This same implied future devaluation of the USD, which is part of over 80% of all forex trading volume, drove the USD index to its lowest level in months, with predictable results. The USD was the week’s weakest currency while the EUR was the strongest, despite news of deteriorating PIIGS bond prices and EU growth which together at other times could have put the EUR at the bottom of the weekly forex pile.
The USD weakness is coming from the worries that the Fed will implement more quantitative easing going forward. In their statement, the Fed stated that inflation was still below the levels which they felt would interfere with price stability. Going forward in the next few months, I expect inflation to pick up slightly due to the current USD weakness, importing inflation from the likes of Japan and China. The next time the Fed meets will be in Nov and by then, things could be a little different. However, Obama faces a big challenge come mid-term elections, should he lose seats in the congress, he will be pressurized to introduce even more stimulus measures. I am still leaning towards further measures being introduced and this is one of the main reasons to my bullishness. As long as USD continues to be weak, expect the market to remain strong.
Personally, I like what I see in the markets, even though the indices look a little over bought and slight weakness may be seen in Oct but the trend is still firmly on the positive side. So do make sure you accumulate during the next dip. Got a little cold today so will keep it a little short. I promise, I will have a stock pick for next week because I have been doing a little background studies on some interesting companies.
Ironically, my top pick Sarin has not moved at all, however it is important for us to be patient because true value normally shines through. It is almost impossible to time the market, but it is possible to find good companies and sit on them till the market realises their value.
Ok I am getting a little sleepy now, will try to write more when my head gets clearer.
Have a good week ahead.
Best,
SVI
Sunday, September 26, 2010
Saturday, September 18, 2010
I cannot stand children but I sure love the business of delivering them. Thomson Medical ($1.01)
The other day, I was sitting alone thinking about how my portfolio has been doing this year and I realised that it has gone absolutely nowhere. By nowhere I mean outperforming the major indices but very little alpha can be found. I am very disappointed in my own performance and it is not possible for me to find any excuses for myself. A classmate of mine who started his own fund management company has logged in gains in excess of 20% while I am stuck at only 12% is making me feel rather envious and also disappointed. To think I never thought much of him when we were young, but talk about late bloomers.
Even though I am once again right that the market would continue moving up while the rest of my colleagues continued their bearishness on equities. I like that because it gives me the reassurance that even the supposed "experts" were skeptical, that means the market is no where close to being bubblish. Slowly but surely some of the deep value stocks are starting to move up.
The likes of Innotek, Sarin, Bright World etc are looking as if activity has picked up. While Genting continues to be on the tear. Genting Berhad has moved to $10 in a matter of 2 weeks, Genting Singapore has gone past my target price and Genting Hong Kong has doubled. Basically, anything that bears the name Genting has appreciated to levels that have not been seen before. I dare anyone who has the guts to go short on these counters at this moment. It would take a very brave man to do so.
Last week, I took a hiatus because I just could not find the time to do any research whatsoever and felt inadequate to comment on anything. I believe going forward when I start my studying, it will be difficult for me to find any time to write. So lets make some hay while the sun shines.
Lets go more in-depth today on what I think is a good industry for shareholders and not for its customers, healthcare. All market experts point to healthcare as the defensive industry to be in. Demand is inelastic, earnings and dividend yields are consistent. Many health care stocks have done well in Singapore over the past year, with Parkway being the highest profiled healthcare company to be involved in an acquisition tussle. Trading at close to 30 times p/e, the price being paid for Parkway is one that seems a little excessive and optimistic at the same time. No doubt, the winner Khazahnah came out owning the numero uno of healthcare companies in Asia and its growth prospects are very promising.
Personally, I like healthcare very much. Why? Firstly, it is not a demand driven business. It is driven by supply. You must be wondering whether I have woken up on the wrong side of bed after a late night of drinks. My question to anyone is, when was the last time you told the doctor what medicine and the amount you needed. The last time I checked, the doctor is the one that tells you how much you need and what you should to take. There are not many of us out there that questions whether the doctors give us unnecessarily expensive medicine or prescribe treatments that are not effective. So doesn't the supplier drive the demand in this case? It is like printing money. I need to clarify here that this is by no means an attack on the morality of the healthcare system, I am just saying that this is a good industry in terms of demand and supply dynamics.
Macro drivers
The number of foreign patients coming to Singapore seeking healthcare services reached 500k last year, that was the highest ever. Although we all know that the govt's target of 1 million foreign patient arrivals by 2012 will not be met but it will probably be achieved by 2015.
Another macro driver for the sector's growth will be population growth. Our population has grown by 120k per year since 2000, driven mainly by "foreign" talents. This will mean demand will only continue growing.
When I was looking across the board for attractive healthcare providers to invest in, one in particular appeared on my screen. It captured my attention because it is one that I seriously doubt I will ever be a patron of the place. *touch wood* This is none other than Thomson Medical. Personally, I am dead against having kids (the worse possible investment a human being can ever have) which I know is one of the more controversial ideas that I have. But that is not the topic of our post today.
I love the idea of others having kids because at least I know that there are people out there who are willing to take up the burden and liability which will be a great comfort for our govt. I will never forget a couple of National Day Rallies ago, where our very own beloved PM Lee gave a speech about how Singaporeans are not having enough kids and that the replacement ratio of couples in Singapore is way below international standards at 1.22 kids per couple. That is worrying. Not that I really care.
With such a low replacement ratio, it is not a surprise that Thomson Medical whose key expertise in women and children, has not been trading at the average price multiples (20-25) for healthcare companies in Singapore. Its growth prospects are truly not as rosy as the other healthcare providers considering so many Singaporeans are not looking to have kids.
Background
Thomson Medical Centre (TMC) is a leading private women and children’s hospital in Singapore. It provides a comprehensive range of facilities and services for primary, secondary and tertiary healthcare, with focus in the areas of Obstetrics and Gynaecology (O&G) and paediatric services.
The 190-bed Thomson Medical Centre along Thomson Road has been in operation since 1979 and offers quality healthcare by a team of highly experienced O&G specialists and pediatricians. It also operates Thomson Fertility Centre, which offers In-Vitro Fertilisation (IVF) programmes to aspiring parents, as well as a chain of seven Thomson Women’s Clinics island-wide. Other subsidiary companies include Thomson Pre-Natal Diagnostic Laboratory, Thomson Aesthetics Centre and Thomson International Health Services.
TMC has also made significant strides with its regional aspirations. Its hospital consultancy project, the 260-bed Hanh Phuc International Women & Children Hospital in Binh Duong Province is scheduled for completion in Q3 2009. In September 2008, the Group secured a second hospital consultancy project in Vietnam -- a proposed private women and children hospital to be sited in Hanoi.
The Group transferred its listing to the Mainboard in December 2007. In recognition of TMC’s best practices in corporate transparency, the Group enjoyed a three-time win in the Most Transparent Company Award category of the SIAS Investors’ Choice Awards from 2006-2008.
For winning the Singapore Promising Brand Award (SPBA) three years in a row, and in recognition of our brand, we were conferred both the prestigious SPBA Silver Award and the SPBA Distinctive Award in 2006.
In 2007, Thomson Medical Centre won the Singapore Prestige Brand Award and was the overall winner of the “Most Established Brand” category. These awards, jointly organized by the Association of Small & Medium Enterprises and Lianhe Zaobao, are indeed testimony to the strong brand performance of Thomson Medical Centre.
With a sterling brand name, dedicated doctors and nurses, and highly personalised service, TMC is poised to continue to be the market leader for woman and child care.
Valuations
TMC has been able to grow their revenues very consistently throughout their time as a listed company. Revenues have grown at a CAGR of 13.3% which is very impressive considering the fact that they are operating in a country with one of the lowest birth rates globally.
Gross margins have hovered at 40 odd percent over the past 5 years. That is something that I love about it. Net margins stand at the late teens. Profit after tax has also grown by more than 20% over the past 5 years. This is by no means a company that has no growth in its business. Look for further growth in its revenue and profitability as their Vietnam operations start.
The company has also indicated that they are looking for further expansion regionally. This bodes well because TMC is very established specialist in their field and their segmentation gives them a unique positioning against their competitors. This is the competitive edge that investors should look for in any company before investing.
Operating cash flow has been very consistent and also growing at the same time. Net cash position on its balance sheet, giving it a strong balance sheet that is ready for further growth opportunities.
In terms of dividends, TMC is paying out more than 50% of their earnings per year. With earnings of 2.43 cents for the first half, it is possible for TMC to generate more than 5 cents in earnings which will translate to a dividend payout of 2.5 cents or more. I fully expect the dividends to rise by 10% or more per year over the next 5 years barring any crisis or need for capital for further expansion.
At this point in time, I do think that the momentum has been strong behind the stock and I would not recommend the point of entry to be at this price. Allow for a pull back before venturing into it. It is one for the longer term and very suitable for investors looking for a combination of consistent dividends and capital growth. Do not expect it to move like a growth stock but it will be a good core stock to have in your portfolio. My target for this stock is $1.20 by mid 2011 based on 20 times 2011 earnings and $1.45 by end 2011.
Anyway, I wanted to write something on Biosensors but DBS has already issued a detailed report on it. That will be a much more speculative play. I remember an analyst told me 5 years ago that Biosensors was going to be a acquisition target and I told him it was too early to tell. However, now I feel it is a lot more likely to be an acquisition target because it has started to reap rewards from its technological edge in drug eluting stents. Keep it on your radar, there is money to be made on a trading basis.
Thats all for this week.
Best,
SVI
Even though I am once again right that the market would continue moving up while the rest of my colleagues continued their bearishness on equities. I like that because it gives me the reassurance that even the supposed "experts" were skeptical, that means the market is no where close to being bubblish. Slowly but surely some of the deep value stocks are starting to move up.
The likes of Innotek, Sarin, Bright World etc are looking as if activity has picked up. While Genting continues to be on the tear. Genting Berhad has moved to $10 in a matter of 2 weeks, Genting Singapore has gone past my target price and Genting Hong Kong has doubled. Basically, anything that bears the name Genting has appreciated to levels that have not been seen before. I dare anyone who has the guts to go short on these counters at this moment. It would take a very brave man to do so.
Last week, I took a hiatus because I just could not find the time to do any research whatsoever and felt inadequate to comment on anything. I believe going forward when I start my studying, it will be difficult for me to find any time to write. So lets make some hay while the sun shines.
Lets go more in-depth today on what I think is a good industry for shareholders and not for its customers, healthcare. All market experts point to healthcare as the defensive industry to be in. Demand is inelastic, earnings and dividend yields are consistent. Many health care stocks have done well in Singapore over the past year, with Parkway being the highest profiled healthcare company to be involved in an acquisition tussle. Trading at close to 30 times p/e, the price being paid for Parkway is one that seems a little excessive and optimistic at the same time. No doubt, the winner Khazahnah came out owning the numero uno of healthcare companies in Asia and its growth prospects are very promising.
Personally, I like healthcare very much. Why? Firstly, it is not a demand driven business. It is driven by supply. You must be wondering whether I have woken up on the wrong side of bed after a late night of drinks. My question to anyone is, when was the last time you told the doctor what medicine and the amount you needed. The last time I checked, the doctor is the one that tells you how much you need and what you should to take. There are not many of us out there that questions whether the doctors give us unnecessarily expensive medicine or prescribe treatments that are not effective. So doesn't the supplier drive the demand in this case? It is like printing money. I need to clarify here that this is by no means an attack on the morality of the healthcare system, I am just saying that this is a good industry in terms of demand and supply dynamics.
Macro drivers
The number of foreign patients coming to Singapore seeking healthcare services reached 500k last year, that was the highest ever. Although we all know that the govt's target of 1 million foreign patient arrivals by 2012 will not be met but it will probably be achieved by 2015.
Another macro driver for the sector's growth will be population growth. Our population has grown by 120k per year since 2000, driven mainly by "foreign" talents. This will mean demand will only continue growing.
When I was looking across the board for attractive healthcare providers to invest in, one in particular appeared on my screen. It captured my attention because it is one that I seriously doubt I will ever be a patron of the place. *touch wood* This is none other than Thomson Medical. Personally, I am dead against having kids (the worse possible investment a human being can ever have) which I know is one of the more controversial ideas that I have. But that is not the topic of our post today.
I love the idea of others having kids because at least I know that there are people out there who are willing to take up the burden and liability which will be a great comfort for our govt. I will never forget a couple of National Day Rallies ago, where our very own beloved PM Lee gave a speech about how Singaporeans are not having enough kids and that the replacement ratio of couples in Singapore is way below international standards at 1.22 kids per couple. That is worrying. Not that I really care.
With such a low replacement ratio, it is not a surprise that Thomson Medical whose key expertise in women and children, has not been trading at the average price multiples (20-25) for healthcare companies in Singapore. Its growth prospects are truly not as rosy as the other healthcare providers considering so many Singaporeans are not looking to have kids.
Background
Thomson Medical Centre (TMC) is a leading private women and children’s hospital in Singapore. It provides a comprehensive range of facilities and services for primary, secondary and tertiary healthcare, with focus in the areas of Obstetrics and Gynaecology (O&G) and paediatric services.
The 190-bed Thomson Medical Centre along Thomson Road has been in operation since 1979 and offers quality healthcare by a team of highly experienced O&G specialists and pediatricians. It also operates Thomson Fertility Centre, which offers In-Vitro Fertilisation (IVF) programmes to aspiring parents, as well as a chain of seven Thomson Women’s Clinics island-wide. Other subsidiary companies include Thomson Pre-Natal Diagnostic Laboratory, Thomson Aesthetics Centre and Thomson International Health Services.
TMC has also made significant strides with its regional aspirations. Its hospital consultancy project, the 260-bed Hanh Phuc International Women & Children Hospital in Binh Duong Province is scheduled for completion in Q3 2009. In September 2008, the Group secured a second hospital consultancy project in Vietnam -- a proposed private women and children hospital to be sited in Hanoi.
The Group transferred its listing to the Mainboard in December 2007. In recognition of TMC’s best practices in corporate transparency, the Group enjoyed a three-time win in the Most Transparent Company Award category of the SIAS Investors’ Choice Awards from 2006-2008.
For winning the Singapore Promising Brand Award (SPBA) three years in a row, and in recognition of our brand, we were conferred both the prestigious SPBA Silver Award and the SPBA Distinctive Award in 2006.
In 2007, Thomson Medical Centre won the Singapore Prestige Brand Award and was the overall winner of the “Most Established Brand” category. These awards, jointly organized by the Association of Small & Medium Enterprises and Lianhe Zaobao, are indeed testimony to the strong brand performance of Thomson Medical Centre.
With a sterling brand name, dedicated doctors and nurses, and highly personalised service, TMC is poised to continue to be the market leader for woman and child care.
Valuations
TMC has been able to grow their revenues very consistently throughout their time as a listed company. Revenues have grown at a CAGR of 13.3% which is very impressive considering the fact that they are operating in a country with one of the lowest birth rates globally.
Gross margins have hovered at 40 odd percent over the past 5 years. That is something that I love about it. Net margins stand at the late teens. Profit after tax has also grown by more than 20% over the past 5 years. This is by no means a company that has no growth in its business. Look for further growth in its revenue and profitability as their Vietnam operations start.
The company has also indicated that they are looking for further expansion regionally. This bodes well because TMC is very established specialist in their field and their segmentation gives them a unique positioning against their competitors. This is the competitive edge that investors should look for in any company before investing.
Operating cash flow has been very consistent and also growing at the same time. Net cash position on its balance sheet, giving it a strong balance sheet that is ready for further growth opportunities.
In terms of dividends, TMC is paying out more than 50% of their earnings per year. With earnings of 2.43 cents for the first half, it is possible for TMC to generate more than 5 cents in earnings which will translate to a dividend payout of 2.5 cents or more. I fully expect the dividends to rise by 10% or more per year over the next 5 years barring any crisis or need for capital for further expansion.
At this point in time, I do think that the momentum has been strong behind the stock and I would not recommend the point of entry to be at this price. Allow for a pull back before venturing into it. It is one for the longer term and very suitable for investors looking for a combination of consistent dividends and capital growth. Do not expect it to move like a growth stock but it will be a good core stock to have in your portfolio. My target for this stock is $1.20 by mid 2011 based on 20 times 2011 earnings and $1.45 by end 2011.
Anyway, I wanted to write something on Biosensors but DBS has already issued a detailed report on it. That will be a much more speculative play. I remember an analyst told me 5 years ago that Biosensors was going to be a acquisition target and I told him it was too early to tell. However, now I feel it is a lot more likely to be an acquisition target because it has started to reap rewards from its technological edge in drug eluting stents. Keep it on your radar, there is money to be made on a trading basis.
Thats all for this week.
Best,
SVI
Saturday, September 4, 2010
Genting Berhad, a top class value cash cow, RM$9.22
What a week! After kicking off with a slew of new measures by our favourite government in their desperate attempts to cool the property market and ended off with a nice series of economic reports that brought risk taking back into the equity market. Capping off an interesting week, we saw a stock that was left for the dead for the longest time showing me the most bullish Japanese candle stick (technical analysis terms) I have ever seen.
One honorary mention before I start. My fave protege sent me an sms while he was training in a jungle somewhere in Thailand. Imagine this. Sending me an sms while in a jungle to ask about a stock. Talk about the conviction to stocks. I love that. I can totally imagine myself using a smart phone to monitor stocks while carrying my rifle, looking out for snakes and whatever the jungle may offer as a threat to our lives. Yes yes it is a little melodramatic but humor me.
Lets see, how I should summarise the Singapore market for this week. If I had to say it, I would say it was a week dominated by two Gentings. On Monday and Tuesday, we saw Genting Singapore scale to greater heights. All time high of $1.83, still unbelievable for me but boy am I glad I changed my call on it. On Friday, we saw a crazy charge from Genting Hong Kong, racing up by 40% on 1 day! This was what I was referring to earlier, the Japanese candlestick formed was the most bullish I have ever seen. Opening at its day low of US$0.30 and closing at a day high of US$0.42. Don't even get me started on the volume traded. The total volume for the day on the SGX was S$1.5 billion and Genting Hong Kong accounted for S$215 million. That was amazing. Judging by how it closed, I will not be surprised if it continues going up on Monday, in fact it will probably gap up to US$0.435.
Whether it is sustainable or not is not really something I would speculate on. No doubt there has been improvement in their earnings through cost cuts but honestly, it is still trading at 98 times p/e including one off gains. The whole rally started when Genting Hong Kong revealed they were in talks with the Philippines gaming authorities of operating a resort there. Them and 2 other parties may get the project but I am not ready to say that this is a company that has turned the corner.
Since it has all been about Genting this week, it inspired me to look deeper into the Genting Group to see if there is still more value to be derived from its group of companies. Where else would I start besides the its main holding company, Genting Berhad. So here is what I found.
Genting Berhad, the South-East Asia's most prominent casino operator, founded by the great Tan Sri Lim Goh Tong back in 1965.
It all started when he began the initial development works of building a 20-kilometre private access road, across tough mountainous terrains from the foothills to the summit of Mount Ulu Kali, located at 2,000 metres above sea level.
The company was incorporated under the Companies Act 1965 on 30 July 1968 under the original name of Genting Highlands Hotel Sdn Bhd to operate a hotel and casino, and to develop an integrated tourist complex in Genting Highlands, Malaysia. The company changed its name to Genting Highlands Hotel Berhad upon its its conversion into a public company on 24 July 1970. It assumed its present name of Genting Berhad on 9 June 1978.
Genting Group via Genting Berhad became involved in palm oil production in 1980 with the acquisition of The Rubber Trust Group, comprising three Hong Kong plantation companies which owns approximately 13,660 hectares of plantation land in Peninsular Malaysia. This division under listed entity Genting Plantations Berhad now has about 133,000 hectares of land in Malaysia and Indonesia. It is one of the leading and lowest cost palm oil producers in Malaysia.
The shares of Genting Berhad were listed on the Main Market of Bursa Malaysia Securities Berhad in 1971. A restructuring exercise was undertaken in 1989, which involved the initial public offering and listing of Genting Malaysia Berhad on Bursa Securities and resulted in Genting Berhad's becoming an investment and management company.
Genting Group via Genting Berhad became involved in the electricity power generation and supply and the paper manufacturing businesses in 1994 and in the exploration and production of oil and gas in 1996 under Genting Oil & Gas Limited.
I remember, when I first went to Genting Highlands when I was 22, I couldn't help but marvel at the amazing feat of building such a big resort up in the mountains and it must have taken an extraordinary company to achieve it. Add in the fact that they managed to convince a Muslim government to give it a licence to operate a casino in the country with the 2nd largest Muslim population. So far, they are the only ones to be able to attain such a licence and technically granting them a monopoly status in Malaysia.
I remember back in 2006, there were a couple of private equity firms that were looking to buy into gambling assets like Harrah and Trump entertainment, putting gaming stocks in the limelight. At that time, credit was cheap and gaming companies were geared up to their necks due to their expansion plans. They were all trading in excess of 20 times p/e and everyone and anyone wanted to own a piece of the gaming business.
Fast forward to 2010, now gaming stocks have become unloved especially with the slowdown in gaming revenues in Las Vegas and saturation of growth in Macau. The 2 best performing gaming stocks in the world over the past couple of years have been Las Vegas Sands (LVS) and Genting Singapore, thanks to their new growth engines in our lovely island country of Singapore. To think that LVS almost went into chapter 11 back in 2008, they sure have turned things round very nicely. Till today, LVS is still geared heavily and I believe its stock price has exceeded its fundamentals by far. Genting Singapore has also had a lovely run up but I am skeptical about its upside potential until it reports its next two quarters of earnings. It will probably see $2 eventually but I am looking for a safer proxy to Genting Singapore and that comes in the form of Genting Berhad.
First lets have some trivia.
Guess how much would an investment in Genting Berhad shares be worth today if an investor bought 1000 shares at RM$1 each in 1971?
A WHOPPING RM$2.19 million!!!!! That translates to a CAGR of 22% per annum over the past 38 years. Talk about a good investment. I believe that as good as a stock can go.
Currently, Genting Berhad is ranked 9th largest gaming company in the world by market cap. The market cap of the company stands at approx S$14 billion. So why
don't I dissect its sum of parts first. Genting Berhad owns 51% of Genting Singapore whose own market cap in Singapore comes up to S$24 billion! So in terms of market cap, Genting Singapore is larger than Genting Berhad!
Genting Berhad's stake in Genting Singapore is worth S$12b, its 48% stake in Genting Malaysia is worth S$3.7b and 19.3% stake in Genting Hong Kong is worth S$722m. Those are its stakes in its gaming subsidiaries. Total worth of those stakes come up to S$16.422 billion. So that is more than the market cap of Genting berhad and we have not taken account its stakes in Landmarks (their property development arm), Genting Plantations (its palm oil plantation business), Genting Sanyen Power and Genting China Power (its power generation business in China, India and Malaysia) and Genting Oil and Gas (its oil and gas production arm with interests in China, Morocco and Indonesia). So is that enough value for you?
No? I thought so.
How about the fact that its the largest casino by EBITDA in the world? Its EBITDA margins are more than 40%. Throw in the 19.5 million visitors per year visiting Genting Highlands. There is also plans for Genting Berhad to operate New York City's first gambling parlor, at the Aqueduct racetrack in Queens. Initial approval is for them to put in 4500 slot machines and electronic table games. The plans are to create a destination resort that would attract both local and international visitors.
Need more?
Management as remained pretty much the same which is the Lim family which owns 39.6% of the company. Tan Sri Lim Kok Thay who is their CEO has a good track record in allocating capital in a way that benefits shareholders.
Balance sheet strength?
Genting Berhad now has RM$16.25 billion in cash and it has total liabilities of RM$19.6 billion.
Cash generating machine?
The fact that the company has generated RM$2.5 billion in operating cashflow yearly since 2007 is an impressive feat. This year it has generated more than that in the first 6 months of 2010. I love consistent and predictable cashflows from operations more than anything else.
Still not enough?
Then don't bother to invest in anything because nothing will ever be good enough.
Oh yes, earnings...they have grown by 120% yoy for the first 6 months of 2010. Even though it's stock price has appreciated 40% since March, we are still looking at a grossly undervalued stock. Just on asset value alone, the stock should be valued in its early teens. So do your maths and you will see the sensible thing is to have some Genting Berhad in your portfolio.
I found it so much easier to write this post than Genting Singapore's earlier last month and it felt good too.
Note: Technically, the stock will move a little lower in the next couple of days but it will be a good chance to accumulate more of this gem of a stock.
Have a good week ahead!
Best,
SVI
One honorary mention before I start. My fave protege sent me an sms while he was training in a jungle somewhere in Thailand. Imagine this. Sending me an sms while in a jungle to ask about a stock. Talk about the conviction to stocks. I love that. I can totally imagine myself using a smart phone to monitor stocks while carrying my rifle, looking out for snakes and whatever the jungle may offer as a threat to our lives. Yes yes it is a little melodramatic but humor me.
Lets see, how I should summarise the Singapore market for this week. If I had to say it, I would say it was a week dominated by two Gentings. On Monday and Tuesday, we saw Genting Singapore scale to greater heights. All time high of $1.83, still unbelievable for me but boy am I glad I changed my call on it. On Friday, we saw a crazy charge from Genting Hong Kong, racing up by 40% on 1 day! This was what I was referring to earlier, the Japanese candlestick formed was the most bullish I have ever seen. Opening at its day low of US$0.30 and closing at a day high of US$0.42. Don't even get me started on the volume traded. The total volume for the day on the SGX was S$1.5 billion and Genting Hong Kong accounted for S$215 million. That was amazing. Judging by how it closed, I will not be surprised if it continues going up on Monday, in fact it will probably gap up to US$0.435.
Whether it is sustainable or not is not really something I would speculate on. No doubt there has been improvement in their earnings through cost cuts but honestly, it is still trading at 98 times p/e including one off gains. The whole rally started when Genting Hong Kong revealed they were in talks with the Philippines gaming authorities of operating a resort there. Them and 2 other parties may get the project but I am not ready to say that this is a company that has turned the corner.
Since it has all been about Genting this week, it inspired me to look deeper into the Genting Group to see if there is still more value to be derived from its group of companies. Where else would I start besides the its main holding company, Genting Berhad. So here is what I found.
Genting Berhad, the South-East Asia's most prominent casino operator, founded by the great Tan Sri Lim Goh Tong back in 1965.
It all started when he began the initial development works of building a 20-kilometre private access road, across tough mountainous terrains from the foothills to the summit of Mount Ulu Kali, located at 2,000 metres above sea level.
The company was incorporated under the Companies Act 1965 on 30 July 1968 under the original name of Genting Highlands Hotel Sdn Bhd to operate a hotel and casino, and to develop an integrated tourist complex in Genting Highlands, Malaysia. The company changed its name to Genting Highlands Hotel Berhad upon its its conversion into a public company on 24 July 1970. It assumed its present name of Genting Berhad on 9 June 1978.
Genting Group via Genting Berhad became involved in palm oil production in 1980 with the acquisition of The Rubber Trust Group, comprising three Hong Kong plantation companies which owns approximately 13,660 hectares of plantation land in Peninsular Malaysia. This division under listed entity Genting Plantations Berhad now has about 133,000 hectares of land in Malaysia and Indonesia. It is one of the leading and lowest cost palm oil producers in Malaysia.
The shares of Genting Berhad were listed on the Main Market of Bursa Malaysia Securities Berhad in 1971. A restructuring exercise was undertaken in 1989, which involved the initial public offering and listing of Genting Malaysia Berhad on Bursa Securities and resulted in Genting Berhad's becoming an investment and management company.
Genting Group via Genting Berhad became involved in the electricity power generation and supply and the paper manufacturing businesses in 1994 and in the exploration and production of oil and gas in 1996 under Genting Oil & Gas Limited.
I remember, when I first went to Genting Highlands when I was 22, I couldn't help but marvel at the amazing feat of building such a big resort up in the mountains and it must have taken an extraordinary company to achieve it. Add in the fact that they managed to convince a Muslim government to give it a licence to operate a casino in the country with the 2nd largest Muslim population. So far, they are the only ones to be able to attain such a licence and technically granting them a monopoly status in Malaysia.
I remember back in 2006, there were a couple of private equity firms that were looking to buy into gambling assets like Harrah and Trump entertainment, putting gaming stocks in the limelight. At that time, credit was cheap and gaming companies were geared up to their necks due to their expansion plans. They were all trading in excess of 20 times p/e and everyone and anyone wanted to own a piece of the gaming business.
Fast forward to 2010, now gaming stocks have become unloved especially with the slowdown in gaming revenues in Las Vegas and saturation of growth in Macau. The 2 best performing gaming stocks in the world over the past couple of years have been Las Vegas Sands (LVS) and Genting Singapore, thanks to their new growth engines in our lovely island country of Singapore. To think that LVS almost went into chapter 11 back in 2008, they sure have turned things round very nicely. Till today, LVS is still geared heavily and I believe its stock price has exceeded its fundamentals by far. Genting Singapore has also had a lovely run up but I am skeptical about its upside potential until it reports its next two quarters of earnings. It will probably see $2 eventually but I am looking for a safer proxy to Genting Singapore and that comes in the form of Genting Berhad.
First lets have some trivia.
Guess how much would an investment in Genting Berhad shares be worth today if an investor bought 1000 shares at RM$1 each in 1971?
A WHOPPING RM$2.19 million!!!!! That translates to a CAGR of 22% per annum over the past 38 years. Talk about a good investment. I believe that as good as a stock can go.
Currently, Genting Berhad is ranked 9th largest gaming company in the world by market cap. The market cap of the company stands at approx S$14 billion. So why
don't I dissect its sum of parts first. Genting Berhad owns 51% of Genting Singapore whose own market cap in Singapore comes up to S$24 billion! So in terms of market cap, Genting Singapore is larger than Genting Berhad!
Genting Berhad's stake in Genting Singapore is worth S$12b, its 48% stake in Genting Malaysia is worth S$3.7b and 19.3% stake in Genting Hong Kong is worth S$722m. Those are its stakes in its gaming subsidiaries. Total worth of those stakes come up to S$16.422 billion. So that is more than the market cap of Genting berhad and we have not taken account its stakes in Landmarks (their property development arm), Genting Plantations (its palm oil plantation business), Genting Sanyen Power and Genting China Power (its power generation business in China, India and Malaysia) and Genting Oil and Gas (its oil and gas production arm with interests in China, Morocco and Indonesia). So is that enough value for you?
No? I thought so.
How about the fact that its the largest casino by EBITDA in the world? Its EBITDA margins are more than 40%. Throw in the 19.5 million visitors per year visiting Genting Highlands. There is also plans for Genting Berhad to operate New York City's first gambling parlor, at the Aqueduct racetrack in Queens. Initial approval is for them to put in 4500 slot machines and electronic table games. The plans are to create a destination resort that would attract both local and international visitors.
Need more?
Management as remained pretty much the same which is the Lim family which owns 39.6% of the company. Tan Sri Lim Kok Thay who is their CEO has a good track record in allocating capital in a way that benefits shareholders.
Balance sheet strength?
Genting Berhad now has RM$16.25 billion in cash and it has total liabilities of RM$19.6 billion.
Cash generating machine?
The fact that the company has generated RM$2.5 billion in operating cashflow yearly since 2007 is an impressive feat. This year it has generated more than that in the first 6 months of 2010. I love consistent and predictable cashflows from operations more than anything else.
Still not enough?
Then don't bother to invest in anything because nothing will ever be good enough.
Oh yes, earnings...they have grown by 120% yoy for the first 6 months of 2010. Even though it's stock price has appreciated 40% since March, we are still looking at a grossly undervalued stock. Just on asset value alone, the stock should be valued in its early teens. So do your maths and you will see the sensible thing is to have some Genting Berhad in your portfolio.
I found it so much easier to write this post than Genting Singapore's earlier last month and it felt good too.
Note: Technically, the stock will move a little lower in the next couple of days but it will be a good chance to accumulate more of this gem of a stock.
Have a good week ahead!
Best,
SVI
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