SINGAPORE (Jan 28): About a year ago, Genting chairman and CEO Lim Kok Thay led a group of prominent Malaysian businessmen, including Chua Ma Yu and David Kong Hon Kong, on an African safari, flying them to Kenya on private luxury jet Crystal AirCruises.
While on the week-long cruise in February last year, the casino tycoon would not have imagined that Genting Malaysia would be dealt a bad hand later in the year. Already embroiled in an ugly family feud, the Genting group seemed to have fallen prey to Murphy’s law late last year.
Genting Malaysia suffered its first blow in early November when the Pakatan Harapan government announced that the duty on gross gaming income would be increased from 25% to 35% and gaming machine duty on gross collection would go up from 20% to 30%.
On top of that, the Ministry of Finance increased the annual casino licence fee by RM30 million to RM150 million ($49.37 million), and machine dealer’s licence fees from RM10,000 to RM50,000 a year.
As the only licensed casino in the country, Genting Malaysia was clearly the target of the duty hikes.
There was more bad news in late November, when, in a US district court in California, Genting Malaysia filed a suit against the Twenty-First Century Fox group of companies and Walt Disney Co — which is acquiring Fox — for breaching its licensing agreement. In the complaint, Genting noted various delays by Fox, from refusing to provide the digital assets for half a dozen Ice Age characters to rejecting numerous requests for approvals for the park’s design. Then, when Disney came on board, Genting claimed the defendants were looking to terminate the deal, owing to seller’s remorse.
As a result, the hilltop casino operator will not be able to complete its 20th Century Fox World — a long-awaited movie-inspired theme park project in which it has invested US$750 million ($1.02 billion) — at Resorts World Genting this year. In fact, this is the gaming group’s second run-in with Disney, as the latter had blocked Genting’s plans for a casino in Florida — a fact alluded to in the complaint.
For Genting, the bad news did not stop there. The group slipped into a third-quarter net loss of RM275.8 million — its first quarterly net loss in 10 years — owing to a RM1.83 billion impairment loss on Genting Malaysia’s investment in promissory notes issued by the Mashpee Wampanoag Tribe.
And just when shareholders thought the worst was over, Genting’s indirectly wholly-owned subsidiary that is developing Resorts World Las Vegas — to be opened in 2020 — found itself entangled in a lawsuit with US-based casino operator Wynn Resorts Holdings.
According to news reports, Wynn Resorts is suing the Genting unit for copying its famous “curved bronze glass” façade. Resorts World Las Vegas is being built just opposite Wynn Encore on the Las Vegas Strip.
The string of negative developments sparked selldowns in Genting and Genting Malaysia shares as investors got jittery over their earnings prospects.
However, there is a bright spot on the horizon, albeit a long way off, that could change Genting’s recent misfortunes — Japan, one of the world’s last major untapped casino markets.
Glimmer of hope
Global players have long expected the legalisation of casino gambling in Japan. So far, at least seven foreign casino giants have openly said they intend to secure one of the three integrated casino resort licences to be made available in the country.
Four of them — Las Vegas Sands Corp, MGM Resorts International, Wynn Resorts and Caesars Entertainment Corp — are based in Nevada, the US.
The remaining three are Asia-based gaming firms, namely Genting, Galaxy Entertainment Group Ltd (GEG) and Melco Resorts & Entertainment.
Genting owns casino properties in Malaysia, Singapore, the UK and the US, whereas GEG and Melco operate casinos in Macau.
It is worth noting that Genting has indicated its interest in competing for a share of the Japanese market via its 52.75%-owned Genting Singapore — the operator of Resorts World Sentosa in the city state.
In his capacity as executive chairman of Genting Singapore, Lim shared some thoughts on the company’s chances in the race for a Japan casino licence. “We are encouraged by the passing of the Integrated Resorts [IR] Promotion Bill in Japan and will be positioning the group as a strong candidate for the bidding process,” he wrote in Genting Singapore’s 2016 annual report. “If we are successful in bidding for the IR in Japan, this project will create significant value to the growth of the group.”
Interestingly, Genting Singapore had, in November 2016, announced the disposal of its 50% interest in a joint venture in Jeju, South Korea, for US$420 million to refocus on Singapore and possibly venture into Japan.
About a year later, Genting Singapore successfully raised ¥20 billion in a maiden Japanese yen-denominated Samurai bond, acting through its Japan branch office.
In Genting Singapore’s 2017 annual report, Lim acknowledges that these funds were earmarked for supporting the group’s corporate activities in Japan, including preparatory works in anticipation of the passage of the country’s IR execution bill and bidding for its gaming licences.
With the backing of Prime Minister Shinzo Abe, Japan’s parliament passed a law in July last year allowing up to three casino-resorts to open in the nation. However, the casinos are unlikely to open before the mid-2020s.
How ready is Genting Singapore to get a slice of the gaming pie in the Land of the Rising Sun? When contacted, Genting declined to comment.
Screaming ‘buy’ on Genting Singapore
Analysts believe new casino licences in Japan will generate the same kind of investor interest as Las Vegas Sands and Genting Singapore did when they opened in the city state, especially in the strong contenders.
This seems to support analysts’ more positive outlook on Genting Singapore — with 22 recommending a “buy” and no “hold” or “sell” calls — compared with Genting and Genting Malaysia.
The Japan story may be a potential catalyst for Genting Singapore, but is it strong enough to mitigate the impact of all the negative developments at the group?
Vincent Khoo, head of research at UOB Kay Hian Malaysia, points out that should Genting Singapore emerge victorious, the financial impact may or may not fully offset Genting’s setbacks in Malaysia, as it depends on the project stake and potential returns.
“The award of the Japan concession will not be known this year, but based on past experience, the share prices of the strong contenders tend to move up as the bidding process advances to request for proposal [RFP] and beyond,” he tells The Edge Malaysia.
Rakuten Trade vice-president of research Vincent Lau also recalls that Genting saw a rally in its share price during the bidding process for Singapore’s IR.
“After numerous setbacks in Malaysia, Genting’s fortunes look likely to change with the bidding for Japan’s integrated casino resort. Its current share price reflects all the negatives and it can only get better,” he tells The Edge Malaysia.
Lau says the research house sees great value and opportunity in Genting and Genting Malaysia after the recent selldown, making them a good bet.
Maybank IB Research analyst Samuel Yin Shao Yang highlights that the size of Japan’s gambling market ranges from US$6 billion to US$30 billion a year.
“If they [Genting Singapore] get a chunk of the pie, then it is a good thing. It will definitely help [Genting], but whether it will be significant enough remains unclear at this point in time,” he says. “We don’t exactly have the full picture just yet; we only know that it’s going to be a big market, but the full details are not out yet.”
TA Securities senior investment analyst Tan Kam Meng emphasises that the Japan catalyst is not immediate, as “we will only see the result of the bidding in 2020”. “Genting Singapore has a reasonable chance, but it will be a tough fight. It had guided the market that this year will be when the company firms up all the gaming law and regulations. The bidding process or the submission of plan will be next year. There’s still a long way to go,” he stresses.
Asked about the company’s chances of winning the bid, Tan says it is very competitive and thus difficult to tell. “Genting Singapore is competing against the big boys in the industry, where everybody has pledged to spend close to US$10 billion. If they were to win the bid in Japan, it will definitely be a positive catalyst for them because gaming revenue in Japan could be bigger than in Singapore,” he explains.
An industry observer in Japan points out that it is not entirely clear when the RFP will be issued, as the government does not appear to have outlined a master plan yet.
“Reports say it will be out this summer. Only after that can local municipalities start appointing IR operators,” he says.
Osaka mayor Hirofumi Yoshimura had said last month that he hopes to start the bidding process early this year with the aim of deciding on the operator by next year.
“This will help Osaka open the IR by 2024, avoiding a clash with the 2025 World Expo,” says the industry observer.
Aggressive overseas expansion
Genting, which began life in 1965 as a family holiday resort development in Genting Highlands, has grown steadily over the years to become the diversified global corporation that it is today.
The group is involved in leisure, hospitality, gaming and entertainment, oil palm plantations, power generation, life sciences and biotechnology activities. Its businesses are spread across Malaysia, Singapore, the US, Bahamas, the UK, Egypt, China, Indonesia and India.
The group comprises four companies listed on Bursa Malaysia and the Singapore Exchange, namely Genting, Genting Malaysia, Genting Plantations and Genting Singapore (see shareholding chart).
The Lim family also controls Genting Hong Kong, which operates a cruise ship business under the Genting Cruise Lines name and a casino business in the Philippines.
Lim heads the sprawling business empire that he inherited from his late father, Lim Goh Tong, a legendary rags-to-riches gaming mogul who died in 2007.
Today, 67-year-old Kok Thay remains one of the world’s most prominent gaming barons, ranked by Forbes as Malaysia’s sixth-richest man, with a fortune of US$4.3 billion. As Genting chairman and CEO, Lim has over the years expanded the group’s global footprint in various business sectors.
According to Forbes, Lim has been on a fierce overseas drive, investing at least US$5 billion in five years in gaming resort projects in the US, Bahamas and Philippines.
The way he manages and grows the Genting group is often said to be in sharp contrast to his father’s classic business model. One just has to look at Genting’s overseas ventures today to see the difference.
“Genting was the darling of investors because of its huge cash pile. That’s Genting. It won’t collapse because of a crisis. It will not have cash-flow problems. That’s because of its conservative business model — earn and build. That was how Goh Tong built up his business empire slowly,” says an observer. “It’s the same business model as Stanley Ho’s in Macau. They basically just want the gamblers’ money. When the gamblers are deep into the game, they don’t care about the colour of the carpet or what paintings you hang in your casinos.”
But times have changed. New business models require billions in investment before you even earn a dollar. Genting in Malaysia had been a low-cost operator, which explained its high profit margins.
“They gave you a basic hotel room, just good enough for you to stay. But today, they have brought in all the big names, such as Burger & Lobster, which could serve to attract patrons. But how many of them are going to the casino? This is where the real money is made!” says the observer.
“If you look at Resorts World Sentosa in Singapore, the crowds at Universal Studios and the casino are different... there is not much overlapping. If I go to the theme park, it does not mean I will go to the casino.”
As for the cruise business, Lim was seen as Genting HK’s talisman who pushed for its aggressive expansion in the global arena.
“There is this story that I always like to share with people: What makes Genting so different? We come from Malaysia, a small country, but we go out to the world, we open our eyes and learn new things,” Colin Au Fook Yew, the founding president of Genting HK, told guests and media at the company’s 25th anniversary celebrations in Singapore.
He recalled something that Lim had told him years ago: “Colin, Norwegian Cruise Line is up for sale. We must go global, we cannot just stay in Asia!”
“I studied the company three times, and I told him, ‘This is a bankrupt company, it is not worth doing it!’”
But Lim was adamant. And so, Genting HK, then known as Star Cruises, acquired Norwegian Cruise Line in 2000, making the company the third-largest cruise line in the world.
In 2016, Genting bought three shipyards in Germany, collectively known as “MV Werften”, to build cruise ships for its own brands, following the purchase in the previous year of Lloyd Werft, which specialises in building mega yachts and other newbuilds.
In the last 50 years, cruise ships have been in short supply, owing to the specific skill sets needed for the endeavour. Thus, the German shipyard is seen as Genting HK’s foundation for the next 25 years.
Be that as it may, in the near term, the market will be watching how the group resolves its entanglements with Fox and Wynn, with hopes that Lady Luck smiles on it again. — The Edge Malaysia
Liew Jia Teng is an assistant editor and Wong Ee Lin is a writer with The Edge Malaysia