Genting HK: a turnaround story

SOMETIMES the headlines don't tell the whole story. A case in point is the recent results of Genting Hong Kong.

The company recently reported a first-half net profit of US$12 million, reversing a loss of US$34.5 million during the same period last year (though Genting HK was a different animal then). But after stripping out US$14.4 million in one-off gains, Genting HK turned in a core net loss of US$3 million for the first six months of this year, a figure which fell far short of analysts' estimates of some US$96 million.

But what the market appears to have missed is the fact that this company made a huge turnaround during its second quarter.

Genting HK, once known as Star Cruises, is a three-pronged US$1.9 billion market-cap gaming entity comprising Star Cruises in Asia, Norwegian Cruise Line (NCL) in the US, and Resorts World Manila (RWM) in the Philippines.

The interesting bits about the company emerged during a briefing provided by management a day after the Aug 28 results.

During the briefing, the company's management said gaming turnover numbers had exceeded all expectations during the second quarter, and hinted that the numbers in July and August continued to take off. Analysts and some of the more privileged investors were told that on some days, wins at its Manila casino could match any other casino in the world, based on return on capital invested.

 

The best daily win last month exceeded US$7 million, the equivalent of S$10 million. This should be a familiar number to anyone who recently followed the results unveiled by Genting Singapore's Resorts World Sentosa, which reported over S$900 million in revenue for the quarter, or S$300 million a month, which translates to S$10 million in takings per day.

The interesting thing is that RWM achieved this with minimal marketing effort and without the huge capital outlays of the Singapore casinos.

The casino, which is still in its early stages of development, currently operates 199 tables and 1,200 slot machines. This is expected to increase by 50 per cent when it opens its third gaming floor in the final quarter of this year. But RWM has also identified a second site, and has a gaming licence allowing it to operate some 2,000 tables and 7,000 slot machines over the two sites.

In comparison, RWS and Marina Bay Sands each have about 500 tables and 1,300 slot machines.

There is a nice parallel here with Genting Singapore which, after a somewhat undistinguished start marked by a huge writedown of its London gaming assets, took off during its second quarter to post S$396 million in earnings to end-June.

But Genting HK has several advantages over its Singapore cousin and Malaysian parent.

For one thing, the captive Philippines market is young and huge, with its population of almost 100 million. And as the only luxury casino in the country, it faces minimal competition.

Meanwhile, reports emerged yesterday about the Genting group entering into in discussions with the Philippines government on the possible purchase of the latter's state-owned gaming assets. These assets, held under state-controlled PagCor, comprise over 40 small casinos which raked in almost S$900 million in income during 2008. If this latest deal does happen, it could significantly enlarge Genting HK's gaming portfolio and revenues.

Meanwhile, through its Star Cruises, which has been plying the Hong Kong-Taiwan route since May 2009, Genting HK is laying the foundations for its involvement in Taiwan's ambitious integrated resort project. The Taipei government has reportedly already appointed consultants to look into this.

Numbers are important and do tell a story.

But sometimes, looking beyond just historical earnings data, and listening to guidance provided by management, can provide more colour and clarity about the outlook and prospects for a company. In the case of Genting HK, the picture appears a lot more colourful and exciting than its first-half earnings numbers suggested.