Performance from Genting Singapore not up to expectations

Genting Singapore reported its final quarter results today. In its report,

"Revenue was registered at S$788.5 million and adjusted EBITDA was S$385.6 million.
Singapore IR contributed revenue of S$775.2 million for the fourth quarter of 2010, an increase of 6% from the third quarter of 2010. The improvement in the revenue is substantially contributed by the increase in the volume of premium players‟ business with significant contribution from USS and the hotels. There was a daily average of around 8,300 visitors to USS with an average spend of S$85 per visitor. RWS‟ hotel occupancy for fourth quarter of 2010 was 79% with an average room rate of S$294.
Adjusted EBITDA of Singapore IR for the fourth quarter of 2010 was S$389.8 million. This is an improvement of the margin from the third quarter of 2010 and is attributable to the increase in revenue. It is, however, diminished by a lower luck factor in the VIP business compared to the third quarter."

As a comparison Sands Singapore registered a USD305.8 million (S391.4 million) EBITDA. Hence, results from both seems to be almost identical.

The poorer performance seems to be the case, as while the government is attracting more visitors to visit Singapore as a tourist destination, at the same time they are trying to reduce its own people from visiting the casino that often. Seems to me the above expected performance registered in the 2nd quarter may be due to Genting Singapore was using the opportunity to make the most out of it as it was the only casino in the country during then as Sands was late to open.

Over time as I was expecting results to constantly improve at above average speed (>10%), the competition between Sands and Genting is a healthy thing as who will ultimately be winner is Singapore, the country itself. Remember, Singapore is just a small little country with its country within the city and vice versa. If you compare Vegas as a metropolitan, what was Vegas 50 - 60 years ago? Despite the downturn during the financial crisis, Vegas is the fastest rising metropolitan in US over the last 50 years! Given half what Singapore can achieve as a destination for gaming or even convention for Asia as compared to either Vegas or Monte Carlo, you will see these related businesses thriving.

This is a two horse race but both can turn out to be winners. Remember, this blog is into finding winners!

Green Packet to face liquidity trouble in 12 months time?

In a financial report, you can cheat (or disguise) a P&L or even your balance sheet, but you cannot hide your cashflow statement. I am not claiming that Green Packet (GP) disguise its financials but here to study GP, perhaps the best numbers come from the cashflow statement not the P&L.

In my previous post, I did question why companies such as GP bother to compete against incumbents such as Maxis, Axiata, TM as the telco business is a very high capex business and you need financial muscle to fight, here it is you can see that GP spent a lot for its size and almost getting nowhere:


Over the last 8 quarters, GP faced a negative free cashflow of RM770 million (a sum which is not large for companies like TM, Maxis but excessive for GP). If you notice, its current cash position is around RM172 million, but more importantly, it is facing negative operational cashflow quarter after quarter. Positive operational cashflow is what you need to repay your loan. The rate it is going, it may be some time before it will achieve a positive operational cashflow, but time is what GP may not have. (but of course unless it raises another round of fund as what it did with SK Telecom- this of course I do not know) If you look at its total borrowings, it did not move much, most probably to its inability to raise funds from the debt market.

Cashflow expenses for a player like GP are probably as follows:

• equipment purchase i.e. PPE expenses (probably the largest in the context of GP) which includes telco tower equipment and Consumer Premise Equipment;
• marketing and advertisement expenses which I believe depends on whenever GP has the funds;
• costs for access such as payment to TM, TimeDotCom etc.;
• other operational expenses like staff costs, acquisition costs.

If GP wants to remain in the business, the expenses that GP can reduce are the marketing and advertising expenses. It cannot stop expanding hence stopping the expansion of its coverage would be futile for its business and planning. How much coverage it already has is not known though (for me). By my reckoning, without inclusion of the PPE expenses, GP's negative operational cashflow is around RM20 - 30 million per quarter. Hence, if you look at the cash position against the debt that GP has, it could already be in trouble.
It is always tough to compete against incumbents that already have positive operational cashflow. GP is just squeezed in all areas i.e. size, costs structure, economies of scale, funding abilities. Any aggressive action that the other competitors take would just kill GP! And I really see that happening. Hope I am wrong, but in my mind GP just took the wrong fight!

Serious Investing!

My top 10 wish lists to EPF

After it declares 5.8% today, I have a wish list for EPF as I know it will not be able to sustain its performance over a long period unless it changes its style of investments. Consistency will not be easy to be achieved as it now has a large proportion of its investments into equity. I do not actually mind this as long as it manages to maximise its investment.

Top 10 wish lists

1. Move more funds overseas - be careful though. Since your fund is not small, invest in only large cap companies. Companies that are tried and tested. Invest in companies that has strong dividend track record;
2. Be more transparent - do not just list down the top 30 stocks, provide the rationale for your investments. We do not ask for you to reveal your rationale pre-investments as you do not want to give away your planning and secrets but please provide your reasoning for your doing so post-investments;
3. reduce your holdings of Malaysian stocks - fundamentals are fundamentals be it overseas or local. By holding more than 10% of any company or worse still holding a controlling stake will do harm to you as an investor, more so a pension fund;
4. do not hold more than 5% of any company - be an investor rather than someone that any company deems as potentially threatening. If you hold more than 5%, companies will have to start listening to you. You do not want to be that - be a passive investor;
5. Corporate Bonds - while today bonds may not be returning that high, do look at them and consider private sector bonds - but only investment grades;
6. do allow individuals to withdraw our savings in EPF before 55 years of age if it exceeds RM500,000 as you will want those money in our pockets rather than you manage it for us;
7. reduce the employee's contribution to 5% from 11% currently if a person's annual income exceeds RM 150,000;
8. invest into assets generating income both locally and overseas - your move into PLUS is the right one. Keep it up;
9. invest into companies that has large free float;
10. try not to invests into companies that are family controlled.

Telecommunications in Malaysia - a sector not to be missed

When I thought of how much monthly expenses are spent on communication, I thought I should not miss out this sector.

I spend around RM430 a month paying these companies. Some may pay much lower, some may even pay much higher, nevertheless it is already a necessity. We use their services from voice to data (3G or High Speed Broadband), whereas for video content, we use Astro's services.




Few thoughts about this sector:

1. voice has matured, with more spending on mobile rather than fixed. Fixed line usage will continue to deteriorate;
2. data is growing, but who will be the winner ultimately. Current seems to be TM. Will they continue to grow their market share?;
3. mobile has the Big 3 i.e. Maxis, Celcom (under Axiata) and Digi. The others such as UMobile, YTL, Redtone are just passers-by;
4. this is a high capex game. Remember telcos are technology adopters not so much of a technology innovative companies. AT&T used to have Bell Labs which churned out tonnes of new technologies during the earlier days. Now this is not so - I remember Bell Labs became Lucent and now it is Alcatel-Lucent. Look at where Alcatel-Lucent is right now - almost animosity. Telcos are more of adopters today. Look at how AT&T, Verizon, even Maxis and the Singapore telcos are so reliant on Apple, Blackberry and recently Google to help them to push their 3G packages;
5. since it is a high capex game, why the smaller players bother mind-boggles me;
6. anyway I believe they are looking at the post investment effect which is the amount of free cashflow received is very rewarding;
7. all the big boys (Axiata, Maxis, Digi and TM) are fighting over the data market share. Smaller players are also putting their effort in not allowing this to be just the big boys game;
8. Will any player be able to break Astro's dominance? Is yes, when and who can possibly be the player?

The industry is gamed for exciting times (has always been since mobile became something big).
Here are some of the market cap size of companies in this space:

As you can see, the telco sector consists of around 9% of the total market cap - very significant. Now who will be the winner? - as my blog is trying to identify the better play. I will have more of the industry and individual company analysis of this sector.
See ya!

What EPF did last quarter?

I reproduced and provided some additional analysis on the EPF investment numbers to study its portfolio by value. Here they are:




Note that based on the Top 30 holdings, their total investment value was RM74.76 billion. Their most significant increase in investment by percentage was IJM Corporation (+2.23%) while they sold 6.33% of RHB Capital which tells that there is a probability of EPF reducing their significance in being the largest shareholder in RHB. However, EPF remains to hold large stakes in Malaysian banks - i.e. all 4 of the Top Malaysian banks - Maybank, CIMB, RHB, Public. Talk about stocks picking! They don't do that aren't they?
During the same period, KLCI improved from 1,463.50 to 1,518.91, an improvement of 3.79%. By my counting, EPF was a net seller. (Although I may not have the full details of what they do, my analysis was based on what they report which is the top 30 investments only.) Anyway, it may be good enough to see what EPF was doing.
From their action, I would commend on them, as they were selling at the time when the investment value was on the up. (This does not mean that I agree that they put so much money in the Malaysian equity market.)
From the behavior that is reflected by EPF, would my guess of EPF being the most significant vehicle which will support the market when it comes down, while they will be selling when the market is performing better - be true?
Another barometer that you are seeing is that EPF holds more than 12% in 17 of the FTSE KLCI 30 companies (see the 2nd and 3rd column). That I would say they have their hands in a lot of our Malaysian large cap companies!