TOP Reasons Why Genting Agreed To Partner Stanley Ho

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Jan 24 2007
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Gambling is perhaps one of the oldest and lucrative businesses in the history of mankind – since thousands of years ago, gambling has been part of the life or culture of Chinese civilization. Macau or Macao which is known as the Monte Carlo of the Orient has a long history of casino business and generates 64% of the SAR’s (Special Administrative Region) revenue – that’s how important gaming industry to the survival of tiny Macau.

In 2001, two years after Portugal reluctantly handed back the goose that lays golden eggs to China, foreign casino operators allowed into Macau. Before the liberalization, Macau’s casino industry was monopolized and controlled by the Casino King – Stanley Ho’s Sociedade de Jogos de Macau for almost 40 years. The entry of gaming giants such as Wynn Resorts (Nasdaq: WYNN, stock), MGM Mirage (NYSE: MGM, stock) and Galaxy Entertainment Group Limited (HKG: 0027) basically gave Stanley a run for his money.
And you can bet your last dollar how drooling Genting Group (KLSE: GENTING, stock-code 3182) was in wanting a piece of the pie. But what are the main factors that prompted Genting’s willingness to trade its’ just-won lucrative 30-year gaming license in Singapore through Star Cruise Ltd (SIN: S21) for the auto-entry into Macau’s casino industry?
  • Macau’s gaming revenue surged to US$6.95bil last year from US$5.6bil in 2005, surpassing Las Vegas which was estimated to have achieved US$6.6bil revenue in 2005. Experts see Macau’s gambling revenue growing quickly to $9 billion to $11 billion by 2010 and upward of $15 billion by 2012. Looking at this great potential it would be insane not to get excited and drool at the same time?
  • After unsuccessful bid for a casino license in Macau four years ago of which Genting Group lost to Stanley Ho, Wynn’s Co and Hong Kong-based Galaxy Resort & Casino, there appears to be no other opportunity (at least in the short-term period) to tap into the golden-bowl. Hence, it makes lots of business sense to partner with Stanley for an instant footprint into Macau’s gambling industry. Furthermore both Genting and Stanley have the cards that each other is looking for at the same time.
  • Macau is perhaps sitting on top of one of the biggest “Ready-Market” in the casino industry. It was estimated there are 1.3 billion people living within three hours’ flight from Macau and 100 million people are within the radius of a three-hour drive. Chinese gamblers normally spend most of their money at casino tables – a good indicator for gambling business.
  • Though Chinese gamblers are notorious for staying in Macau for only a day, spending most of their money at casino tables and rarely enjoy themselves at fancy restaurants, shows or conventions the trend is expected to change once more entertainment-centric projects are launched. Stephen Wynn who launched the new $1.2 billion casino resort in Macau once said if-you-build-it-they-will-come approach will work as Las Vegas faced the same problem before. According to Macau Statistics Bureau, the region received 21.99 million visitors last year, up 17.6% from 2005 with 55% came from China. And this is the exact area where the Genting would target with its’ specialization in families entertainment and hospitality sector back in Malaysia. While casinos are quite crowded, resort entertainment is still at its infancy.
  • Genting needs to grow out of Malaysia, a Muslim country, since it’s not likely that another casino license will be issued. With its’ huge war-chest, Genting is desire to relocate out of Malaysia should anything happen be it business-wise or politically. Though Genting’s crown jewel, Casino de Genting and Genting Highlands Resort will remain the only player in Malaysia, you’ll never know when you’ll lose the gaming license. Furthermore the permit has to be renewed every three months with an estimated cost of 40 to 50 million ringgit per-renewal. This quarterly permit renewal makes Genting vulnerable to license hikes or sudden political change, not that the Government of Malaysia adopt an investment-friendly policies with its’ ever-famous NEP (New Economic Policy).

“The news is materially positive. Genting are getting capital and also getting majority control of a casino in Macau,” said James Mitchell, an analyst at Goldman Sachs (NYSE: GS, stock) who had a buy call on the stock prior to the news. With a market value of $7.54 billion, Genting is already the world’s seventh-largest casino operator, behind Las Vegas-based Wynn Resorts (Nasdaq: WYNN, stock), and about one fifth the size of top firm Las Vegas Sands (NYSE : LVS, stock).

Some analysts said that Genting stock price should be rated at par with those of US casino owners, Las Vegas Sands Corp is trading at 84.90 P/E, MGM Mirage at 37.69 P/E and Wynn Resorts at 16.92 its’ price earning ratio or P/E.

Genting International (SIN: G13), a majority-owned vehicle for expansion outside Malaysia was listed in 2005 in Singapore. The stock price has tripled in the last three months and currently trading at an unbelievable P/E (price earning ratio) of 218. Genting Berhad stock price is tr
ading on PE of 19 times.

# TIP: FinanceTwitter is definitely bullish with both Genting and Resorts stocks in the long-run. After the share split, the stock could be more affordable for local retail investors.

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