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
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