Saturday, December 16, 2006

Genting's WIN-WIN Situation

Overall coup for Genting
By HARI RAJ

Analysts see Sentosa project as a win-win situation for group.

THE dust has settled, and it's the Genting group that has emerged victorious. The gaming giant's vision of Singapore's second casino, which includes a Universal Studios theme park and an oceanarium, proved a winning combination as the Singapore government accepted its proposal for the Sentosa Island integrated resort.

And if there were concerns about the potential negative impact on the Genting Highlands resort (and thus on Resorts World Bhd), more people also believed that the overall effect on the Genting group will more than make up for it.

“It may be a clich├ęd term, but it's quite literally a win-win situation for Genting,” enthuses one analyst.

According to Singapore's Deputy Prime Minister S. Jayakumar, the Genting International plc-Star Cruises Ltd consortium provided “the most compelling proposal overall that best meets our economic and tourism objectives.”

The Genting group beat off competition from US-based Kerzner International Ltd and Eight Wonder to snag the lucrative contract, the last that Singapore has said it will issue for a decade. Dubbed Resorts World at Sentosa, the S$5.2bil project is slated to open its doors to expected throngs of punters and holidaymakers in 2010.

Besides Universal Studios' inaugural theme park in the region, which many feel was the “swing factor” with regards to the Singapore government's desire for an integrated, tourist-based resort, the oceanarium includes the largest single marine tank in the world, an interactive dolphin habitat and a maritime museum.

The project will also include three public amphitheatres, a spa resort, and other retail and entertainment attractions in addition to a total of six hotels with over 1,800 rooms.
The move to build multiple casinos is part of Singapore's plan to shed its “nanny state” image. After removing a long-standing ban on casinos last year, Singapore awarded its first casino contract to US-based Las Vegas Sands in May.

On top of that, the economic rewards suggest a more pragmatic reason behind Singapore's decision. A bank-backed research house points out that the Sentosa project is expected to contribute S$2.7bil, or 0.8%, to Singapore's annual gross domestic product, along with about 30,000 jobs by 2015.

Of course, the Genting group will also receive its share of the spoils.
Says one analyst: “The Singapore government's decision shows that they recognise the quality and expertise inherent in the company, and the Sentosa development, along with the recent acquisition of Stanley Leisure plc in Britain, will propel the group into the international arena of gaming companies.”

Analysts are generally echoing this sentiment, with one indicating that the victory will help the Genting group with its aim of becoming the world's third-largest gambling operator by market value, ahead of Las Vegas-based Harrah's Entertainment and Wynn Resorts.

Similarly, it is expected that the Genting group can bank on its presence in Singapore to add lustre to its appeal when seeking to tap markets such as Thailand or Japan. Also contributing to the group's win was its gaming expertise and sizeable customer database.

From an income perspective, earnings contribution from the Sentosa project is not expected to kick in until 2010 when the resort opens.

A foreign research house has lifted its earnings estimates for Genting Bhd and subsidiary Resorts World by 13% and 3% respectively, but cautions a potential downside risk due to the project's financing costs.

Earlier this week, the group successfully completed two fund-raising exercises that attracted significant institutional investor participation. Genting Bhd placed 33 million shares valued at over RM1bil, while Genting International saw its issue of convertible bonds upsized to S$425mil.
Genting International chairman Tan Sri Lim Kok Thay had previously mentioned that one third of the financing for the project will be raised via equity-related deals, with the rest being sourced from loans.

Despite the issue of potential cannibalisation from the Sentosa project with regards to leisure arm Resorts World's existing operations, most analysts feel that those fears are short-term in nature.

“The Sentosa project should help quell investors' concerns that its operations in Malaysia would suffer as a result of impending competition from Singapore when the resort opens in 2010. In fact, we believe that Resorts World at Sentosa and Genting Highlands in Malaysia will serve as complementary drivers to one another,” writes one analyst.

A foreign research house is among those who feel that winning the Sentosa project has wider, long-term positive implications for Resorts World, via its 36.1% stake in Star Cruises, as the project offers long-term complementary and cross-selling benefits to existing business while fending off near-term regional competition.

“Let's not forget that the two casinos will cater to different crowds – one will be more of a grind while the other will be aimed at upmarket gamers. Although there will be competition, it won't be cut-throat,” says an observer.

The house also feels that the Genting group's capture of the Sentosa project will help address some of the concerns surrounding Resorts World, including deteriorating operating outlook, rising regional competition and a lack of regional growth opportunities.

Going forward, analysts say that some volatility in both counters' share prices is likely in the short term, as investors seek to get a better handle on the valuations of the Sentosa project as well as some of the group's other operations.

Related Link
- Genting Wins Casino License
- Genting wins Sentosa Integrated Resort Bid

Source : STAR
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