Genting: How can one continues to pay himself higher when underperformed?

Genting Berhad's annual report for 2014 was out yesterday. Needless to say, unfortunately for the last few years I am not impressed at all.

To me it should not be a public company if it continues to pay the directors ridiculous amount of salary while it underperforms. If it is private, it can pay whatever amount they like. Just look at the 5-year performance below. It continued to grow its capital but it continued to amazingly underperform.

And it continues to pay the directors higher. Salaries and bonuses for executive directors grew from RM98.8 million to RM114.8 million despite the profit attributable to equity holders dropped from RM1.81 billion to RM1.5 billion. Remuneration for one person is RM151.6 million.

What did that person do? Reversed the fortunes of the group - towards substantially better to be able to be rewarded so much?

To top it off it is the non-executive directors, who signed off the accounts.

Selling Genting for other opportunities

Genting has always been a stock which I was not going to hold for long. It went to as low as RM8.50 for the last few months, but I bought the stock at RM8.92. It is a good stock with very good cashflow over the coming next few years, but its business has sort being challenged recently. The Singapore together with the Malaysian business somehow or rather are tapering down both from the perspective of volume (revenue) as well as margin.

I guess the strong Singapore effect is slowing down. The government of Singapore if you notice is very comfortable with the current situation and at the same time trying to discourage its own citizens to frequent the casinos. This does not augur well for Genting relying much more from its casino business rather than hospitality and theme park business for profits. Genting's gaming and convention businesses in UK and US seem to have slow pick-up rate - probably due to the management's over confidence on its success hence going in big into this area of business. It seems to be getting tougher due to the increasing competition and with many countries now planning to have casinos in their own countries.

At the same time, Genting's other businesses in plantation and power plant are facing some sort of slowdown recently - the first due to the poor palm oil prices while it is selling its power plant business in Malaysia. Power plants are businesses which provide consistent much calculated revenue but it is not exciting if you want strong growth.

With this, I feel that there could be better opportunities from elsewhere. I have hence decided to sell Genting at RM9.17, making a small gain.

Over the last few months, it is getting tougher to pick stocks due to the market getting expensive. From the list of stocks which I have picked, some are doing well while others are facing selling pressure from very large funds.

Position as at 7 Dec 2012

2 of the stocks I hold - Airasia and NTPM are facing selling pressure from large local funds if you notice - Airasia from EPF with this largest fund in Malaysia selling few million shares a day. I have noticed that Tony Fernandez and his partner have been buying but their buying would not be able to provide support to the large volume selling by EPF.

NTPM similarly is being sold by Tabung Haji to the extent that now the fund is holding less than 5% of its stock. I believe that TH is still selling despite it not needing to report the transactions. If large funds are selling, there is no point supporting the stock. Let them sell as fundamentals remain the same while share price is the only one that changes. The lower the share price, the more opportunities it presents for future buying.

Anyway, the small fund that I present here continues to hold on with my latest purchase Padini springing a surprise in a short period from my purchase on 29 Nov 2012. If you notice, the shares that I hold in this portfolio have very good dividend payment track record except for maybe Airasia and TimeDotcom. I like companies with good cashflow and confidently provide good dividends from its cashflow. However, do not buy overly expensive companies though despite the high dividends. There are some which are providing high dividends but are expensive.

On another note, if you notice today's evening announcement, Time Dotcom is proposing for dividend in specie of Digi's shares it holds. It is proposing to distribute 6 shares of Digi for every 25 shares in TimeDotcom held. By doing this, TdC is freeing up and untangling the Digi shares it held for its shareholders, a commendable move. I expect upside for the share on Monday.

There's still growth in Genting Malaysia

At a time when we thought, Resorts World Malaysia is to have tough competition from Resorts World Singapore and Sands Singapore, as well as other more popular gaming destinations as in Macau, Genting Malaysia actually sprung a surprise in terms of what they can achieve. When Genting Malaysia was acquiring the group's gaming businesses in UK from Genting Singapore, the group got some flak as in it was presumed that the UK business is not a profitable business to be acquired. This time around based on its performance for the first half a year, there are some surprises considering the economic condition Europe is suffering from. As you can see, RW Malaysia still has growth both in revenue and EBITDA.

Quarter vs Quarter comparison is great even for revenue and EBITDA

The growth in UK shows that the group could possibly be very serious in building their businesses beyond Malaysia and Singapore. As I said in my previous article, we do not know how well these businesses in UK and US will turn out despite the seemingly bad press they are getting. One thing I know from my observation of its competitors, Genting is the strongest among the big players - and that includes Sands ("LVS").

We do not know that the group is taking this opportunity to expand fast and usually when a company is trying to do things fast there could be mistakes - as long as they are learning and manage those mistakes, that's allright. Remember, Malaysia and Singapore operations are huge cash cows.

It's time to revisit Genting

Genting Berhad ("Genting") is one company which receives a lot of negative news recently due to its seemingly difficulties in having a strong gaming presence in the US gaming market. Firstly, the plan to open a massive casino was faced with legislative approval in Miami. Then, a USD4 billion plan in New York for a convention center faced brickwall as well, when other competitors of this largest Asian gaming company complaint about the lack of equal bidding opportunities.

Recently, the shares of Genting has gotten a beating dropping from RM11.00 per share to below RM9.00 at a time when other blue-chips are doing well. While I may be one of those who is in criticizing the stock, I think the loss in confidence in the company is probably overdone.

Let's not forget, Genting has 2 very strong casinos in Malaysia and Singapore. The casino in Malaysia is generating income of RM1 billion a year with a net cashflow of more than RM1 billion a year assuming that it has no new investments to be made. Of course, it plans to invest USD4 billion for the New York convention centre and the cashflow outlook may be different once that commences.

As for the Singapore's operations, once RWS is fully completed (by end of 2012), it would have very strong cashflow from the business. It gets around net operating cashflow of SGD1.4 billion a year from RWS. You would be wondering what it would be doing with that SGD1.4 billion generated a year. A small sum of it would be reinvested into the resort in Singapore. The rest - is what we see in Genting - investing into areas that it sees opportunities in, and the areas it deems (seems to me) to be attractive are casinos businesses in US.

We have seen that the Genting Group is in a hurry, trying to do deals in 2 major cities in US - New York and Miami while it is already the largest casino operator in UK. It is also looking at Australia. With that, there is no doubt that Genting is looking to be a major casino powerhouse globally. Already, it is the largest Asian operator. In terms of profitability (measured over the last 2 years), it is probably the 2nd largest after Las Vegas Sands. In fact, it has the strongest balance sheet among the major league casino players - Sands, MGM and Wynns Resorts as these players were affected by the US slowdown.

In US, Sands is the most attractive gaming operator, 2nd came MGM. Sands is now trading at USD33.7 billion market capitalization with PE of around 23x. If you look below at Sands Balance Sheet, Genting's is much stronger. Comparatively, Genting is now trading at slightly more than USD10.5 billion market capitalization.

Sand's Balance Sheet as at 31 March 2012

Genting is in a net cash position and even though with the new investments that it is trying to do, its balance sheet will still be strong with very good net operating cashflow from its 2 very profitable casinos in Malaysia and Singapore. Besides that, Genting has a very decent earnings from its Power Plant and plantation businesses - just that its current income from gaming dwarfs that.

Based on Genting's prospective income this year, the current price Genting Berhad is trading values the company at 12x to 13x PE. That to me is a very attractive proposition despite the troubles it may face in trying to expand its gaming businesses in US. What Genting lacks now as in article by Miami-Herald is a strong brand globally (although it is well recognized in Asia). I however feel that we will see that changed over the next decade if it continues to push hard towards global recognition.

With that, I have bought 1,000 units at RM8.92 for my small portfolio.

Following on to that, I have also injected another RM10,000 into the fund and this is what the position looks like as at today.

Genting: Much more left to be desired

The story of a man who hailed from China, came to Malaysia during his teens, built a business empire which is valued at almost RM40 billion today may not turn out to be that nice a story for investors as yet. That same man who almost went bankrupt building a dream castle on top of a nice little hill was doing most things right during his days. His gaming, oil, properties, plantations and many other ventures turned out to be the right call. Maybe it is luck, perhaps it is perseverance - whenever there is a call for certain business decisions, shareholders believed in the call from that man who did not finish schooling but just pure business sense, belief and experience to call from. But, investors continued to believe in this man.

Note: Yes, we may not realise it but it takes a whole lot effort to bring people up to a hill to gamble despite the license, especially the early days!

Now, that man has passed and after transferring his businesses to the second and third generations a decade ago, there are several calls made by his children and grandchildren that let us want to have the same believe, but could we? First, there was this "boo boo" of building one of the largest fleet of cruise liners in the world which caused them to lose billions until today. Then came other project such as the gaming business in UK where until today and after 5 years they could not justify the viability of the purchase to investors.

To top off with that, the humble man's son (who is now the Chairman) pays himself RM113 million last year to top the CEO's remuneration ranking far wide from any other CEOs in Malaysia. That figure was exactly 4% Genting's total profit attributable to shareholders. Is that justified?

Yes, he has done one big right decision which is the gaming business in Singapore but that story is going stale. Why is that?

Just read the below first quarter 2012 announcement:

"The (Genting) Group registered total revenue of RM4,421.1 million compared with RM4,889.2 million in the previous year’s corresponding quarter (“1Q2011”), a decrease of 10%. Lower revenue was recorded from all the business segments except for the Property Division. The Group’s profit before tax decreased by 23% to RM1,456.9 million compared with RM1,890.6 million in 1Q2011."

Why am I saying that Genting's performance is appalling. Against its only other competitor in Singapore, it could not better that competitor. Compare Sands performance (announced below) against Genting, what to you managed to decipher? Sands' performance up, Genting's performance down. In a land of duopoly, how is that happening? This is on top of Sands was at its most bruised period after the US crisis. Imagine when the other large gaming companies managed to pull out of their doldrums especially when Las Vegas manages to find its footing, how will Genting compete, I wonder? Remember, casino business is global, not local especially in the era of vast international travelling.

Sands first quarter 2012 performance
"Las Vegas Sands experienced a strong performance from its domestic resorts and in Singapore, where casino revenue increased 51 percent to $701.3 million in the quarter. The Marina Bay Sands there averaged 98 percent occupancy at $341 a night, the company said."

If Genting cannot better Sands in Asia, I am wondering how is it going to better many more competitors in US (New York and Miami to be exact) where it is venturing billions into right now? Yes, it is trying to pull itself into becoming a behemoth in the gaming business globally. But their many failures more recently, are pulling sceptics on how well they can compete.
-------------------------------------------------------------------------------------------------
Then, I am reading another story of the third generation of Genting (supposedly to be the potential next in line). Let me point you to one story of him buying into Catcha Media. (Look at where Catcha is now!) Shareholders, how are you to entrust your money on this new gen of Genting if they can't get decisions right by buying into a "so-so" small media company? Or is this new gen more interested in allowing a run on the Catcha stock as that was what happened during his purchase?

Sold Genting

After some thoughts, I have decided to sell Genting at RM11.18. I believe that there are better and more attractive stocks to buy. A hint - now I am looking at a dotcom (not many out there in Malaysia that is making money) as its international investor is reducing its stake hence making the stock now rather attractive.

Here is the performance of my stocks investment after 1 year.

The performance of my investment against KLCI and if I put those cash in Fixed Deposits:

Serious Investing!

Lim Kok Thay as Genting's CEO remuneration an absurd RM106.7 million

It is quite astonishing for a son who became a Chairman / CEO from largely his father's effort to pay himself an annual remuneration of RM106.7 million in 2010.

Do not get me wrong, I like the company for its potential and everything else, however Genting Berhad only registered RM2.2 billion PAT last year. LKT took a 5% paycheck of the profit for such a large company?

It must be remembered that the company while does quite well in Singapore, the success does not come from him basically. His success was when he got the concession from the Singapore government to build a gaming resort. I do not see RWS doing better than Marina Sands. In fact Sands I feel is slightly better than RWS.

In UK, Genting failed miserably. Due to Singapore, Resort World Malaysia's income deteriorated. Is this the mark of a CEO who deserves to be paid so high.

How does he justify his RM106.7 million paycheck? Nazir (around RM9 million) or any other CEOs who basically have to work their way to the position does not earn that much while in fact these companies registered better profits.

I could not imagine the son of Genting got paid more than 20x of a normal large company CEO in Malaysia and they still own around 40% of the RM40 billion company.

When you have an owner controlled CEO paying himself so high, you start wondering whether he ever respects the shareholders or is he for himself only? Remember every dollar he makes for the company, he already benefits 40% from it. Isn't that motivating enough?

Can the shareholders do something about this? I bet they can't for obvious reasons!

Serious Investing!

Portfolio Position - 6 Apr 2011

After investing for less than 3 months (the first investment was done on 28 January 2011) and with RM27,500, here is the portfolio position (the below is a real portfolio): Remember, I was talking about putting in money for my child's education. Let's see whether we can do it. I am going to put in more cash into investments if the time is right for me to put in more or any of the stocks become attractive in terms of prices. During the period, I have sold twice and made RM677.90 (although the below table shows RM612.58, the actual profit is higher due to lower brokerage fee paid as compared to the reported table). Cash position stands at RM245.90.
Hence in effect, the profitability is as follows:

This blog is in effect to proof to those potential investors that with a small amount, you can still make a difference with the money you have. A caution though, while investments do provide better returns over a long period, it can be more volatile. Hence do not be let down if your investments do not return you as expected. More importantly, learn from mistakes and do your homework. Can be fun!

Serious Investing!

Genting Berhad vs Genting Singapore

Singapore gaming stocks (Genting and Las Vegas Sands("LVS")) have been the darling of the stock market for a while now.

Over last 9 months, price for LVS has pulled away from their other 2 competitors, i.e. MGM and Wynns. When I was contemplating, price for LVS was hovering around USD16-17. Now it is priced at USD47 a share, a staggering 176% over 9 months, mostly to do with the success of the Singapore casino. Genting Singapore (GenS) is almost similar, its price has upped from SGD1.00 to now around SGD2. Genting Berhad which owns 51.7% of GenS has increased from RM6.70 to now more than RM10.20 an increase of more than 50%. Now the question is whether Genting is still a buyable stock? If yes, should we be buying Genting Berhad or GenS.

Now let us look at GenS and its pros and cons:
Pros

1. Direct exposure to Singapore gaming industry, Singapore government has proven to be a successful country in whatever they attempt to do;
2. Not fully completed yet, hence it is presumed with its completion it may be gaining more in profitablity;
3. By selling its UK casino business to Genting Malaysia, its balance sheet is now much healthier;
4. In fact its balance sheet is much healthier than its direct competitor and foe i.e. LVS;
5. cheaper than LVS, MGM and Wynn - the other big 3 gaming companies which have exposure in different markets.

Cons

1. Already quite highly priced, at 20x PE;
2. More expensive than Genting Berhad;
3. Single exposure to a single market, hence volatility in terms of performance can be very high, very much follows the economy of Singapore where for one quarter can register more than double digit growth and another can have deficit.

What about Genting Berhad, I for one have more preference over Genting Berhad due to the following reasons:

1. a cheaper entry than GenS, priced at around 17x-18x PE with potential for growth as well;
2. Genting Berhad which owns GenS, Genting Malaysia, plantation, power plant and properties has more of a hedge than GenS. At the same time, they do enjoy the ride of success from the Singapore gaming sector;
3. propensity of a higher dividend from Genting Berhad is better due to its balance sheet healthier;
4. as a Malaysian I do not need to change to a different currency when buying Genting's stock;
5. while I may not like saying this, it is better hedged from the management doing stupid things (or rather unfavorable things to minorities) like moving the Genting UK business from GenS to Genting Malaysia.

Globally, due to the strength of its balance sheet, I feel Genting Berhad is a better bet in gaming than any other i.e. LVS, MGM, Wynn as well as its subsi i.e. GenS.