11 things I learned from Genting Singapore’s 2017 AGM

Singaporeans, I’m sure, are all too familiar with the only two integrated resorts (read: casinos) in the country, Marina Bay Sands and Resorts World Sentosa. While the former has become an iconic addition to the Singapore skyline and a popular sightseeing destination, Resorts World has built its name as a family and lifestyle destination due to its location in Sentosa and the Universal Studios theme park.

Resorts World Sentosa is owned by Genting Singapore PLC (SGX: G13), a gaming and integrated resorts developer and operator. Genting Singapore was incorporated in 1984 and listed on the SGX in 2005. Besides Singapore, the group also has a presence in Australia, the Bahamas, Malaysia, the Philippines, and the UK.

According to credit rating agency Fitch, gaming revenues continued to slide in 2016 due to a contraction in the VIP segment and expects gaming revenues to remain flat at US$4 billion for 2017. It added that Singapore’s two casinos will face “added competitive pressure” from Macau and the Philippines.

However, large casino operators like Genting now have their sights locked on Japan as the country announced that it is set to open its first casinos after the 2020 Olympics. Forecasts predict that two integrated resorts in Japan could bring in up to US$10 billion in revenue annually.

What are Genting Singapore’s plans for Japan and its outlook for 2017 and beyond? I attended its AGM to find out.

Here are 11 things I learned from Genting Singapore’s 2017 AGM.

  1. Revenue fell 7.1% year-on-year to $2.23 billion in 2016. Despite this, net profit doubled from $193.0 million in 2015 to $384.5 million in 2016. The increase in net profit year-on-year is mainly due to higher other operating expenses and a $239 million fair value loss on financial derivative instruments the company suffered the previous year. The board declined to give any details when pressed by a shareholder for more details on the nature of the financial derivative instruments.
  2. A shareholder pointed out that even though the group’s net profit was $384.5 million, the profit attributable to shareholders was only $266.3 million with the rest attributable to holders of perpetual securities. This means nearly one third of the group’s net profit is paid to the perpetual bondholders instead of ordinary shareholders. COO Tan Hee Teck explained that the perpetual securities were raised in 2012 and included a clause where they couldn’t be redeemed for five years. Moving forward, the board will consider redeeming the perpetual securities since the group has nearly $5 billion in cash on hand. (Update: Genting Singapore will redeem the perpetual securities in Sep/Oct 2017)
  3. Chinese visitors are a significant market segment for Genting Singapore but promoting gambling or casinos in China is illegal. The COO recounted an incident where 18 employees from Crown Resorts were arrested in October 2016 for allegedly breaking those rules. They have yet to be charged and remain behind bars. Genting works around the rules by collaborating with partners like Alipay to promote its integrated resorts and entertainment offerings as a lifestyle destination, but not its casinos. However, coupled with the renminbi capital controls imposed by the Chinese government, the COO also shared that the VIP market from China has been under pressure the last 12-18 months.
  4. A shareholder wanted to understand Genting’s rationale for exiting its casino project in Jeju, South Korea when the board expressed positivity about the project at the start. Chairman Tan Sri Lim Kok Thay replied that the South Korean government’s decision not to allow locals to gamble at casinos weakened the appeal of the project. Genting decided to exit when an offer came to sell its 50% stake at a profit to its Jeju project partner, mainland China property developer Landing International. On hindsight, the decision now looks even wiser as China recently banned its travel agencies from offering packages to South Korean destinations. According to the chairman, Chinese visitors to Jeju have dropped by 80%.
  5. Genting Singapore chairman revealed that an integrated resort in Japan would be a “mega-project” if they win the license. The group would have to raise significant funding in Japanese yen for the project but the chairman is confident of doing so as Genting has a good credit rating and strong balance sheet. Unlike South Korea, the Japanese government has made it clear that locals are allowed to enter and gamble at the casinos. The chairman highlighted this point because it’s important for the Japanese casinos not to rely on mainland Chinese visitors for revenue – especially since Sino-Japanese relations are fraught with uncertainty. He also mentioned that the attraction of the Singapore casino license was due to locals being allowed to gamble at casinos here — even though there are certain restrictions in place for locals.
  6. A shareholder wanted to know more about Genting’s strategy to win the license in Japan since it would face heavy competition from other large casinos. The COO laughed and replied that if he (the shareholder) was on the same side as him, he wouldn’t want him to disclose Genting’s strategy at a public forum like an AGM. But the COO assured shareholders that he has been following developments in Japan for the last 10 years and the management will do its best to win the license.
  7. A shareholder asked if Genting was interested in Vietnam since news emerged that the government was considering a casino there. The chairman replied that details from Vietnam were sketchy at the moment and they needed more information. He said the Vietnamese government seems to want to experiment with a small integrated resort and was unsure if locals would be allowed to gamble at the casinos long term. The chairman stated that Genting wouldn’t be interested in a small integrated resort project that only catered to foreigners.
  8. A shareholder wondered if the Singapore government would award a new casino license seeing that they recently awarded a license for a fourth telco here. The COO shared that Genting (and Sands) have a 10-year exclusivity period where the government cannot award a new casino license — however, the exclusivity ends this year. He said, “The government can, in theory, award a new license…. and there are certain discussions going on which I cannot reveal.” He declined to say more and joked that he had signed an ‘official secrets act’ when pushed by the shareholder for more details.
  9. A shareholder wanted a justification for chairman Tan Sri Lim’s $7.5 million annual salary when he compared that the DBS Group CEO’s total remuneration was just $8.4 million for a bank that made a profit of $4.2 billion. Independent director and chairman of the remuneration committee, Tjong Yik Min, explained that chairman Tan Sri Lim had already taken a 15% pay in salary cut and a 12% cut in variable bonus in 2016 due to the lower performance of Genting over the past year. He also reminded shareholders to keep things in perspective and pointed out that the size of DBS Group’s senior management “numbered in the hundreds” while Genting Singapore only had 11 staff in senior management.
  10. Another shareholder questioned why, besides chairman Tan Sri Lim, the rest of the directors had reduced their stake in the company if they were confident of Genting Singapore’s prospects moving forward.
    The chairman stepped in and said that like any investor of the company, the directors have the right to buy and sell shares based on many factors and not because they have a lack of confidence in the company.
  11. A shareholder asked the board to share the greatest mistake they made in the past year. The chairman quickly passed the buck to the COO to answer the question which garnered a round of laughter in the room. The COO gamely shared that the management faced many challenges and could have done better in certain areas (but did not give details). He said there was no major mistake over the past year but if he were to reflect across the past 10 years, he should have positioned Resorts World as a lifestyle destination instead of a family destination from the beginning. He added that Resorts World has been successful as a family resort but the market segment and demographics were “not ideal”.

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Adam Wong is the editor-in-chief of The Fifth Person and author of the national bestseller Lucky Bastard! which made the Sunday Times Top 10 Bestseller’s List in 2009 and Value Investing Made Easy which made the Kinokuniya Business Bestseller’s List in 2013. In 2010, he appeared on U.S. national television on the morning show The Balancing Act. An avid investor himself, Adam shares his personal thoughts and opinions as he journals his investing journey online.

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