Whether you are Malaysian or Singaporean, Genting (or Jenting) would definitely be a familiar name that brings back positive memories for both the young and the old.
After all, there aren’t many companies hailing from Southeast Asia that boast a diversified entertainment business, ranging from hotels, casinos and even theme parks. While there are plenty of world class theme park operators in the likes of The Walt Disney Company (NYSE: DIS) and world renowned hotel and casino operators like Las Vegas Sands Corp. (NYSE: LVS), not many have managed to run these two distinct entertainment businesses under one group.
And with the worst of the pandemic now a distant memory, why are Genting Berhad (KLSE: GENTING) and Genting Malaysia (KLSE: GENM) facing removal from the 30-stock FTSE Bursa Malaysia (FBM) KLCI?
Understanding the Genting Group empire
The Genting conglomerate is not just an entertainment and leisure juggernaut. It also has a plantation arm, also a listed entity (KLSE: GENPLANT), as well as operations in property development, energy and also life sciences and biotechnology.
Since the leisure and hospitality business tend to be seasonal, I would focus more on the latest running 9M’24 results. For 9M’24, revenue is up +5 % YoY. Even though the leisure and hospitality business is mostly growing across all regions, the plantation business is facing headwinds, together with its power and investment segments.
Although the top line of the leisure and hospitality business grew, EBITDA is down due to higher operating expenses.
In the plantation sector, despite lower sales volumes, higher selling prices led to a marginal increase in EBITDA. The killer looks to be the power generation sector, due to lower generation from the Banten Plant in Indonesia, as annual maintenance was brought forward from December 2024 to July 2024.
Even though Genting Berhad is multi-faceted, 84% of its revenue is still derived from the leisure and hospitality business. It is by weightage still predominantly a leisure company with some exposure to other sectors. It owns 49.3% of Genting Malaysia, and is thus the indirect owner of the other subsidiaries. Additionally, Genting Berhad owns 52% of Genting Singapore Ltd (SGX: G13).
And it isn’t surprising to see the share prices of both GENTING and GENM trading in tandem. Both are down by roughly 30+% over the last 5 years.
5-year financial snapshot
I got curious – why would a company in the leisure business not recover from the COVID lows? After looking at both GENTING and GENM’s 5-year historical top and bottom lines, I start to discover why.
Even though revenue has breached its pre pandemic high, profitability wise, both company have not recorded better net income, mostly attributable to higher operating expenses.
To top that off, although costs have been stubbornly high and the company has returned lower net income to the shareholders, the executive and non-executive directors still pocketed RM 181 million collectively for FY 2023. Clearly, the returns to retail shareholders are neither prioritised nor aligned with the board’s payouts.
The successors to GENTING AND GENM
Now that we understand the reasons behind GENTING and GENM’s underperformance, which will lead to both stocks being removed from the KLCI components, let’s take a quick look at the 2 usurpers.
First would be Gamuda Berhad (KLSE: GAMUDA). This construction company has reported better results and is riding on the data centre catalyst, securing contracts after contracts. Its share price has ballooned +144% over the last 5 years.
Another KLCI component that will be making its debut will be 99 Speed Mart Retail Holdings Berhad (KLSE: 99SMART). This mini-market chain has taken the retailers with a surprise, opening outlets that cover even the rural towns and villages across Malaysia.
Despite being a relatively newly minted IPO company, the +35% share price movements has pushed 99 Speed Mart into one of the large-cap companies on KLSE.
Who would have though that a chain of mini markets could be worth more than one of the world’s leading leisure business?
My verdict
With everything transpiring, nothing bodes well for GENTING and GENM retail shareholders. No tangible efforts have been made to grow shareholder returns. And with GENTING and GENM having its crown jewels in Malaysia and Singapore, there really isn’t much to expect when it comes to a long runway of growth opportunities.
I would anticipate more selloffs once GENTiNG and GENM are removed and replaced in the KLCI index.
This could be one of those rare situations where a good business and good services don’t necessarily translate into a good investment.
If you’re looking for more stock ideas, Alvin shares how he finds the best stocks to invest in to grow our Dr Wealth portfolio. Learn more here.
