Wednesday, September 16, 2009

Riding the Genting story

You know one of the stocks that I most touted about is Genting. Ever since it was trading at 60 cents, I have been telling my friends to buy Genting. At current price, I know its nuts but I do still recommend Genting with a smaller stake though, as risk of downside is already higher.

Some fundamentalist may argue that Genting has been a loss making company for the past few years and has a weak balance sheet. I would not deny that but to me valuing Genting is more than the numbers on the financial statements. It is about its future prospects. If one believes in the success stories of the things “Made in Singapore”, Genting might potentially be a multi bagger or bare minimum able to reward satisfactory returns to patient long term investors.

So don’t rule out the possibility of a loss making company to turn around. In fact, if you compare Genting with NOL, the latter has a higher loss per share. But why is NOL trading at a higher price? Well you may say that I am not making a fair comparison with a stock of dissimilar sector.

DBS Vickers issued a report making a comparison among gaming stocks around the world. From the table, you can see that valuation of Genting is not really that demanding provided you believe in the forward looking statements. Take note DBS is one the underwriter of Genting RIGHTS issue. Even though the disclaimer mentioned that the analysis was done independently, I advice everyone should take those data with a pinch of salt.

Comparison of Genting and gaming stocks - Sep 2009
Source: DBS Vickers

With regards to the RIGHTS issue and for a company like Genting which requires a large capital expenditure to start off its Singapore operation, I do support their call in raising cash. The dilutive effect from the RIGHTS is not so significant after all. Genting plans to use some of the proceeds to reduce debt and thus lowering financing charges which is definitely desirable. I understand the misery of some long term investors who have participated three RIGHTS exercises in the past four years. If you are short of cash, I am sure you can always sell the nil-paid RIGHTS shares, get your shareholding diluted but still remain profitable.

In my opinion, having Genting as a small portion of your portfolio is not going to make any harm. I feel the odds are much better of buying Genting than punting at Singapore Pools. So should you buy due to speculation or fundamental reasons? I leave the reasons entirely up to you to decide. Let us put the fundamental or technical aspects of Genting aside. Barring any systemic stock market failure, I expect irrational exuberance to continue to drive Genting share price higher as we head towards the opening of Resort World Sentosa.


Musicwhiz said...

I can safely say I will not buy Genting. With 11 billion shares out there (after the rights issue), you'd have to buy a lot to make just a tiny difference....

Plus not all casinos make money - that's a misconception. Whether the IR can or not still remains to be seen.

In the meantime, I would still classify Genting as "speculative".

Cheers !

Mike Dirnt said...

Hi MW,
i kind of agree with you on the huge number of shares. But one dont really need to put a big amount of money to buy genting. Just a little will do to gain some exposure as i believe there is some more upside

If you go by probability, the expectancy of a gambler will always to lose money and thus expectancy of a house will always to win money. Besides casinos, the resorts and hotels as are other sources of revenues with potential expansion to neighboring space in Sentosa. I guess earnings will provide better visibility when it starts operating. For now, shall adopt wait and see approach :P