8 things I learned from the 2019 Genting Singapore AGM

In early April 2019, news broke that the two Integrated Resorts (IRs) in Singapore — Marina Bay Sands (MBS) and Resorts World Sentosa (RWS) –would be investing S$4.5 billion each over the next few years to invigorate the local tourism scene.

RWS, owned and managed by Genting Singapore, added in a press release that the gross floor area of RWS is expected to increase by 50% as a result of this expansion. As part of this redevelopment, key attractions like Universal Studios Singapore and S.E.A Aquarium (which will be renamed the Singapore Oceanarium) will be expanded.

To increase ease of access, a driverless transport system with a much higher capacity than the current monorail will also be built. While analysts agree that this investment will bear fruit for the company in the long run, Genting Singapore shares plunged 8% on the day of the announcement in response to news that casino levies for locals will jump by 50%.

Another growth driver on the cards is the company’s potential expansion into the Japanese market. Back in 2016, the Japanese government legalised casinos, which set the scene for IRs to be built. After years of anticipation, a formal request-for-proposal (RFP) is expected in late 2019, which means that the winners of the IR license will be announced in 2020.

In this pivotal year for the company, I attended the company’s AGM to gather key insights about the developments from its management team. Here are eight things I learned from the 2019 Genting Singapore AGM:

1. Revenues grew 6% year-on-year to S$2.54 billion, while net profits grew 28% to S$755.39 million in 2018. According to the company’s 2018 annual report, the gaming division was the primary driver of top-line growth. Factors that contributed to this growth included well-received gaming events, new gaming products, and growth in electronic gaming.

2. The company will bid for licenses in all three Japanese cities that have expressed interest in having an IR. The Japanese government will grant a maximum of three IR licenses to three cities, after which successful bidders can commence construction. In his prepared remarks, CEO Tan Hee Teck revealed that three cities — Osaka, Yokohama and Tokyo — are currently in the running to secure the licenses. As the company cannot ascertain which of the cities will eventually be awarded IR licenses, the CEO confirmed that the company is planning to collaborate with all three cities to bid for the licenses.

3. A shareholder inquired about the management’s confidence in clinching an IR license in Japan. While the company will be facing stiff competition from larger gaming companies, Chairman Tan Sri Lim Kok Thay is ‘quietly confident’ that they would win a license. The chairman explained that Japanese authorities are looking to follow Singapore’s IR model. As one of two IR operators in Singapore, he believes that the company has an advantage over other competitors, who lack experience running a casino in a tightly regulated environment. 

4. A shareholder then inquired why the proposed expansion of the RWS casino is smaller than that of MBS. To finance the additional costs involved with running a larger IR, the Singapore government will allow MBS and RWS to expand their casino areas by 2,000 square meters and 500 square meters respectively. The shareholder felt that RWS was getting the shorter end of the stick, given that both IR operators will have to invest the same S$4.5 billion over the next few years. According to the CEO, this expansion comes in the form of an option that the IR operators can choose to exercise for a fee. He explained that MBS did not include the additional cost of exercising that option in the well-publicised S$4.5 billion figure. On the other hand, Genting Singapore has included the option cost in its S$4.5 billion figure.

5. The shareholder followed up with a question about the sustainability of Genting’s dividend as it increases the level of investment in the IR. In response, the CEO expressed confidence in the company’s financial position despite elevated levels of investment. He cited the company’s net cash position of above S$3 billion, and its yearly cash flows of between S$800 million and S$1 billion. He added that the company recently paid off an S$680 million loan borrowed by its RWS subsidiary, leaving it debt-free. This places the subsidiary in good stead to make another loan in the future should the need arise.

6. Noting that a number of shareholders expressed concerns that the company was focusing less on the higher-margin gaming segment, the chairman decided to address these concerns. To provide some background to readers who might not be familiar with this issue: gaming revenues account for over two-thirds of Genting Singapore’s total revenue. However, as part of the S$4.5 billion expansion of RWS, casino area will only be increased by a maximum of 500 square meters, which is minute when compared to the 164,000 square meters that will be added through this redevelopment. The chairman explained that there has been a slowdown in global gaming growth. According to him, gaming revenues at downtown Las Vegas casino resorts historically accounted for about 70% of total revenues. Recently, gaming revenues recorded at these resorts dipped below 50% of total revenues, which is a marked drop from historical levels. While non-gaming revenues carry a lower margin, the chairman remarked that this a generational change that integrated resorts have to adapt to. He added that the Singapore government is not comfortable with promoting gambling directly due to the social ills that accompany it. However, they find promoting gambling as part of a lifestyle and entertainment venue acceptable. In order to ensure that the government does not introduce new competition or stiffer regulations, the company needs to align itself with the ideals of the government.

7. The chairman went on to address the value of the S$4.5B investment in response to concerns that the investment will not yield a reasonable return. Besides economies of scale from running more attractions within the same area, expanding the capacity of popular attractions will generate more revenues for the company. He gave the example of the S.E.A aquarium, where the facility’s limited floor area has restricted visitor counts on certain days. Above and beyond the tangible benefits of the investment, the chairman stressed that the company has been benefitting from overseas marketing efforts by the Singapore Tourism Board. This investment can also be seen as contributing back to the local tourism scene. After all, making Singapore a more attractive tourism destination through this redevelopment will ultimately benefit the company. In view of this, the CEO is confident that this S$4.5 billion investment will yield ‘a decent return’.

8. A shareholder asked the board to justify the chairman’s S$10 million compensation. The shareholder remarked that the chairman’s compensation is comparable to DBS CEO Piyush Gupta’s S$11.9 million salary, despite the fact that DBS’s net profit is nearly ten times that of Genting Singapore’s. In response, an independent non-executive director emphasised that profitability is not the only measure of determining compensation. She stressed that other factors like EBITDA margins, internal targets, and growth prospects can affect an executive’s level of compensation. Moreover, the board has done an industry comparison and maintains that the chairman is fairly compensated. The chairman later added that comparisons should be made on an apple-to-apple basis. He quipped: ‘Using the same logic, shareholders in the bank should also ask [if) they are underpaying [their CEO].’

Liked our analysis of this AGM? Click here to view a complete list of AGMs we’ve attended »

Kang Wei has been an investor since he was 15 and is intrigued by the stock market and anything related to business, finance and economics. He favours on dividend-paying aristocrats, high quality stocks and mispriced stock opportunities, and primarily focuses on the U.S. markets.

2 Comments

  1. Kevin G

    June 16, 2019 at 1:17 pm

    Fantastic write ups!

    • The Fifth Person

      June 16, 2019 at 5:16 pm

      Thanks!

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