By S JAYASANKARAN
IN KUALA LUMPUR
BY WINNING the right to develop the Sentosa integrated resort project, Malaysia's Genting Bhd group is poised to be re-rated as a global gaming company with operations in Malaysia, London and Singapore.
More immediately, however, its triumph is expected to add considerable fizz to its share price.
'Although this (Genting's victory) was widely expected, it's still fantastic from a market perspective,' said Jason Chong, a fund manager with UOB-OSK Asset Management in Kuala Lumpur.
'I've seen brokers' reports which, including Sentosa, value Genting at between RM33-36 a share.' Genting closed at RM29.25 in Kuala Lumpur yesterday.
Genting's victory signals a new and brasher direction under its chairman Lim Kok Thay. Mr Lim, the son of Genting's patriarch and founder Lim Goh Tong, has eschewed the conservative, risk-averse ways of his father and stamped his mark on the group since taking over the reins in 2002.
The company has diversified into oil and gas, power and packaging, besides aggressively extending its gaming reach by investing in London - and now Singapore.
Investors like it. Genting's share price hit a historic high of RM30 recently, a fact company officials downplay by pointing out that the previous high was achieved during the mid-1990s - at a time when profits were half of those being achieved now.
Its 2005 net profit was RM1.25 billion (S$545 million).
Indeed, company officials reckon investors don't give Genting the valuations it deserves. Global gaming companies routinely trade at 33-35 times earnings, while Genting is trading at 14 times 2007 earnings.
But the Sentosa project will transform Genting into the world's third-largest gaming company, which could make it a must-have stock for fund managers in future.
On the other hand, the win on Sentosa could have negative consequences for Genting's flagship resort-casino atop the Genting Highlands east of Kuala Lumpur, although these would only kick in after 2009 when the Sentosa project is completed.
'It could affect visitor arrivals to the highlands by as much as 20 per cent because of curiosity about the new kid on the block,' said James Lau, chief executive officer of Southern Bank Securities.
'But it will be a temporary thing because, don't forget that the great pull about the highlands is its (low) temperature.'
The Singapore project is expected to cost $5.2 billion, but Genting, with its healthy balance sheet and net gearing of only 10 per cent, isn't likely to find funding a problem.
Indeed, analysts think that the project is a money spinner with an internal rate of return of 15-20 per cent, which indicates a payback period of five to seven years.
Moody's Investors Service yesterday affirmed the ratings of Genting and its associate Star Cruises, which will have a 25 per cent stake in the Sentosa IR project. The other 75 per cent is held by Singapore-listed Genting International, a subsidiary of Genting Bhd.
Moody's affirmed the A3 issuer and debt ratings of Genting Bhd with a stable outlook.
And it maintained Star Cruises' B1 corporate family rating with a negative outlook due to its high borrowings.
'While this large-scale greenfield project, with an estimated cost of over $5 billion, will increase Genting's exposure to development and execution risks, as well as capital needs in the medium term, it will also strategically strengthen the company's regional coverage and competitive position over the long term,' said Moody's lead analyst Kaven Tsang.
