Genting Singapore has a Management Problem and a Change In Direction Can Improve Share Prices by 60%

Genting Singapore has one of the strangest balance sheet structure for a Casino Operator. Casino operations is a capital expenditure heavy business with the need to build hotels and casino physically on a piece of land. Across the world, most casino operators employ leverage to ensure optimal shareholder return. 

Genting Berhad, Genting Singapore's Parent, employs leverage for its Malaysia operations as well for its Genting highlands casino and resort business. Similarly, in the recent expansion, Marina Bay Sands is using debt, borrowing at a low interest rate to fund its expansion.

Terrible Management of Genting Singapore is Hurting Shareholders

Too much cash (SGD$3.6 billion) is sitting on the balance sheet of Genting Singapore with reported interest income of 3% interest yield. On the other hand, Genting Singapore as a business makes about 7% in earnings yield based on current share prices. 

Genting Singapore only returns 60% of the cash it generates as dividends and keeps 40% for future expansion plans (about SGD$380 million). With a growing cash pile and only a few billion in expansion plans. It makes sense to use the excess cash in the balance sheet to conduct buybacks vis-a-vis parking the cash in the bank. 

Genting Singapore can conduct share buybacks up to $1 to $1.10 and it will still be value accretive to shareholders as compared to the option of letting the money sit in Singapore bank fixed deposits.

If the management of Genting Singapore argues the cash is set aside for future expansion plans, the question is why should the money be left sitting it down. Singapore is a country with easy access to capital and many companies including MBS has been able to obtain loans at 3+% interest. Temasek companies such as Seatrium are getting loans at the low 2% level, even Suntec and Fraser Hospitality utilises debt at a region of 4% interest. Furthermore with its cash generation ability, the amount borrowed will be repaid in a few years. The expansion plan will take 06 more years, Genting Singapore would have accumulated SGD$2 billion by then to fund. And the another 10 years to fully repay it. Again, other casino operators in the world employ leverage to fund and deliver optimal shareholder returns.

Genting Singapore shareholders should demand that the SGD$3 billion in cash be used for a stronger sharebuyback to buy back shares up to $1-1.10 level at next AGM as opposed to letting the money sit in fixed deposits. Such a move will benefit shareholders because the capital allocation will result in improved earnings per shares and asset value to all shareholders.