Malaysian resort and gaming organization Genting Malaysia Berhad (GMB) has been making big moves lately, using massive cash reserves to expand its activities into Europe and America, according to The Star.
Since October of 2010, GMB has acquired Genting Singapore Plc’s UK-based gaming operations, including its 44 casino properties, as well as started new projects in Florida (a 13.9 acre development with a price tag of US$236 million) and New York City in the USA.
Speaking with StarBizWeek, an analyst pointed out, “Genting Malaysia is well positioned to expand its business overseas given its huge cash reserves; we expect such endeavour to boost the company’s earnings potential over the medium to longer term.”
By the end of the first quarter in 2011, GMB cash holdings had shrunken to RM2 billion (US$652.8 million), down from RM5.25 billion (US$1.7 billion) at the end of FY2009. Experts have pointed out the potential costliness of GMB holding so much cash, and note that the company needs to invest this money wisely in “high-growth markets.”
However, these large cash stockpiles can also play to GMB’s advantage: the acquisition of the Miami-based project in Florida was made significantly easier by the security the large cash holdings represent. At US$390 per sq ft, most experts reckon GMB paid a good price for the land, but the true key to unlocking its earning potential is in possible gambling liberalisation by Florida authorities.
In New York, GMB’s new development is projected to open in Q4 of 2011. The development will feature 4,500 video lottery terminals, as well as convention halls, food and beverage outlets, and various other facilities. Like in Miami, experts foresee this development as more of a long-term investment, and it could be some time before it really starts to turn a profit. Optimistically, GHB brass hopes for profits of around RM200 million (US$65.28 million) by 2013.
Genting Malaysia’s UK casino operations have started contributing to the group’s revenue since the fourth quarter of last year. In its latest reported quarter, contributions from the UK business were surprisingly so strong that they lifted the company’s earnings above market expectations.
In a statement, the group said it attributed its encouraging financial performance during the quarter in review partly to its UK casino operations, which generated a profit of RM60.1mil (US$19.6 million).
In the preceding quarter, Genting Malaysia’s UK operations actually posted loss of RM2.1mil (US$685,440) on a maiden revenue contribution of RM188.4mil (US$61.49 million) to the group.
“The group’s UK operations seemed to have turned around now, and we expect earnings from the operations there to continue improving in the coming quarters, albeit at a more volatile rate, considering the uncertainties surrounding the UK’s economy,” an analyst says.
With existing operations in Singapore and Malaysia withstanding competition better than expected, expansion is an exciting and bold move for GMB, but also one that is very much necessary.
Says an analyst, “growth in Asia remains exciting for the industry, but in Malaysia, the market has already matured. Venturing abroad is the right option to diversify its business and avoid hitting a revenue plateau.” - PR