Monday, March 19, 2007

Genting bets on Global Casino Market

Tan Sri Lim Goh Tong took a big “bet” when he started Genting Highlands Resort. It had put him on the brink of bankruptcy at one point but the risk has paid off in spades. We highlight the Genting group in the second part of our monthly series on the growth of large companies.

IN his autobiography, Tan Sri Lim Goh Tong said it was important to be able to seize upon and exploit fleeting opportunities that were hard to come by in times of war or peace.

He grabbed the golden opportunity to develop Genting Highlands Resort in what was then an area in the wilderness and that granted him the sole casino licence in the country 40 years ago.

Tan Sri Lim Kok Thay, 55, his second son who took over the helm in 2004, seems to have inherited his ability, based on the group's swift expansion abroad.

Assisting Kok Thay in the global push is his nephew Justin Leong, 28, who is the head of strategic investments.

The Genting group is now riding high on the liberalisation trend in the global casino business.

The new leadership has transformed the group, which was described in the past as “Malaysia’s sole casino owner”, into an international gaming group.

“Our global expansion is driven by the Singapore, Macau and British authorities' rapid pace in deregulating and opening up of their industries to foreign players,” said Leong, who is Goh Tong's only grandson in the business.

Tan Sri Lim Goh Tong (right) has passed the baton to his son Tan Sri Lim Kok Thay.
“Our ambition is to be one of the world’s top three gaming companies,” he added.

In the Far East, Japan may be the next country to liberalise its gaming sector. Naturally, the group would explore the opportunities there.

The award of Singapore's Sentosa Integrated Resorts (IR) project to Genting International Ltd (GIL), Genting Bhd’s subsidiary, last December has given the management and shareholders a strong boost of confidence that the Genting group could make it in the international race.

A month later, it partnered with Macau’s gambling baron Stanley Ho to run a hotel casino in the special administrative region.

Prior to this, GIL had taken over Stanley Leisure Ltd for £640mil (RM4.3bil). With this acquisition, Genting is now the biggest casino operator in Britain with 46 casinos.

“With a footprint of 41 casinos in the provinces and five in London, we are confident that we will be able to grow this business in Britain's rapidly deregulating environment,” said Leong, who is also the director of Stanley Leisure.

The Genting group is said to stand a good chance to bag even more gaming licences, should the British parliament give the nod to 17 new larger casinos.

The Genting group, which is running the successful Genting Highlands Resort (pic), is said to be keen on bagging the supercasino licence in Britain.
The dice seems to be rolling in the Genting group's favour, at least for now.

Investors were shovelling money into Genting shares, betting for the robust earnings growth that is expected to happen in 2010 when the Sentosa IR project opens for business.

The share price of Genting Bhd, the core company of the group, was flying to a record high of RM41.25 on Feb 5, almost double that in June last year, before it eased to RM36.25 last Friday.

Genting has long been a blue chip on Bursa Malaysia. But the passion for the stock had never been that strong before.

Just five years back, shareholders were disappointed when Genting group lost the race to grab one of the three casino licenses given out by the Macau authorities.

The failure did not augur well for the group at that time.

Investors started to doubt the group’s ability to expand its gaming business beyond the homeland, given that the earlier huge investment in Star Cruises Ltd did not yield promising results.

Also, there were concerns those upcoming luxurious foreign casinos would lure high rollers away from Genting Highlands to Macau.

Worse still, there was talk that Singapore and Thailand wanted to build casinos to woo more tourist dollars.

In addition, there were rumours on founder Lim’s health problem. This had triggered worries on the continuation of the casino licence in Genting Highlands, which is renewable on a quarterly basis.

The success in securing a foothold in a foreign land at least shows that the group is so far in good hands following Lim’s retirement.

Grabbing the opportunities fast is important, but being able to seize the viable ones is equally critical.

The diversified conglomerate has also grown its power generation business in China and India.

The Genting group bucked the trend by entering China’s power industry when foreign players were fleeing from it due to heavy losses caused by spiralling coal prices.

But power assets in China are the overseas ventures that have delivered good returns to the group so far.

The operating profit generated from the power division grew nearly 72% to RM458.58mil in the last financial year ended Dec 31, 2006.

During the year, leisure and hospitality contributed 63% to Genting’s total pre-tax profit, while the power division contributed 17% and plantation, 7%.

Commenting on speculation that the management intended to divest its non-gaming businesses to make Genting a pure global gaming group, Leong said:” We constantly review our business mix and portfolio of assets to ensure optimal returns for our shareholders.”

Last Friday, Genting announced that it was selling its paper and packaging business to an equity fund management firm, CVC Asia Pacific Ltd, for RM745mil cash.

Many speculate property to be the next division that the group would look into when it streamlines its business portfolio after the latest disposal, while the power and oil & gas divisions would probably be kept in the stable.

There is also a possibility that the group will list some of these businesses separately as it has done for its plantations division under Asiatic Development Bhd.

The Genting group seems to have a good set of cards in hand. But it has to play them right.

Analysts said execution is the key risk for the group.

There is a rather tight schedule for GIL to complete the construction of the Sentosa IR, failure of which may mean losing the licence to run a casino there. Furthermore, the issuance of the licence depends on the outcome of a “suitability check” by Singapore’s Ministry of Home Affairs.

There are high hopes and expectations on the group’s future. Investors are watching whether the new leadership will be able to enhance the solid track record that Goh Tong has set over the decades.

Source : STAR
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