THE fog that often obscures the view from Genting Bhd’s self-styled “City of Entertainment” 1,800 metres above the steamy jungles of Pahang does not apparently blur its vision of where it is headed.
If the announcement this month of the issue of US$300mil worth of five-year exchangeable notes is any indication of the future, the group’s global aspirations appear to be clearer than ever before.
The company said the issuance of the notes, through its wholly-owned Labuan-based subsidiary Prime Venture Ltd, would help fund its overseas investments.
The new Luxemburg-listed notes can eventually be exchanged for shares in Genting’s 57%-owned subsidiary Resorts World Bhd, although the alternative of redeeming the notes for cash lies with the company.
Many analysts are expecting the latest move to be a prelude to some major acquisitions in the pipeline, what with the group sitting on a cash pile of some RM2.2bil and short-term investments of RM1.07bil.
The destination of these investments appears to still be unknown but there are telling signs from the group’s past track record. Among the more visible overseas ventures of late have been those in the power and leisure industries.
Already, a Genting-led consortium has submitted a A$3.5bil bid for Loy Yang ‘A’ Power, the largest privately-owned power station in Australia.
Loy Yang is a coal-fired facility and has a generating capacity of 2,000 megawatts, supplying a quarter of the Australian Victoria state’s electricity needs, and accounting for 5% of capacity across its national electricity market in New South Wales, Queensland, and South Australia.
But a landmark court win last week by Australian Gas Light Co that leads the rival Great Energy Alliance Corp consortium (GEAC) to proceed with its bid for heavily-indebted Loy Yang could be a setback for Genting.
The decision came as an exclusive sales agreement between GEAC and Loy Yang vendors was due to expire this week, opening the way for rival bidders such as Genting's US-based utility company AES to begin talks with the vendors.
Analysts said, however, it was too early to write off the Genting-led bid despite the court ruling overturning a previous rejection of AGL’s bid by the Australian Competition and Consumer Commission (ACCC) saying its proposal to buy a 35% stake was anti-competitive.
It is believed that the ACCC is planning to appeal against the Federal Court decision, thereby keeping the door still open for Genting and AES.
However, as the Loy Yang situation pans out, analysts said the key to the group’s current revenues and profits remained its leisure and hospitality businesses. And increasingly, this means looking outside Malaysia for opportunities.
Despite the SARS outbreak earlier this year, the group has performed better than expected. Genting’s annualised year-to-date results are 4% above analysts’ consensus full-year forecast for the group.
In the third quarter of 2003, gaming and hospitality contributed 62% and 56% to group revenue and pre-tax profits respectively.
Although contribution from its flagship Genting Highlands Resort still forms the bulk of this, with operations rebounding post-SARS, the turnaround in performance of Hong Kong-listed associate Star Cruises Ltd has been promising.
In a research note CIMB Securities Sdn Bhd said that operationally Star Cruises, which also owns Norwegian Cruise Line, benefited from the peak summer months in North America by improving on yields there despite higher fuel costs.
Its Asian operations, meanwhile, have picked up gradually post-SARS although suffering some yield declines.
Next year would appear to be a brighter year as the cruise operator deploys SuperStar Leo to Australia in the first quarter and with the Pride of America operating in Hawaii from July, the research house said.
For the group as a whole, analysts said the better performance was due to stronger-than-expected turnaround from virtually all divisions. Overall group revenues jumped 28.5% year-on-year in the third quarter.
In addition to a 3% growth in gaming and hospitality operations at Resorts World, plantation revenues grew 58% from the improved yield and extraction rates and higher CPO prices at its KLSE-listed Asiatic Development Bhd.
The consolidation of 60% subsidiary Genting Sanyen Power Sdn Bhd and higher paper selling prices for the group’s paper and packaging division also contributed more topline growth.
CIMB said the group’s third-quarter EBIT margins expanded to 39.3% primarily on the back of improved margins from Resorts World in light of stringent cost-cutting measures during the height of SARS to effectively lower fixed costs.
It said the leaner structure coupled with higher CPO prices of RM1,500 per tonne and a turnaround in the oil and gas division due to higher oil prices brought significant bottomline benefits as revenues recovered.
Related Story:Genting Highlands a major tourist revenue earner
Did you find this article insightful?