MALAYSIA

Genting sees more clouds ahead

Genting Malaysia, which faced a roller coaster of a year in 2018 amidst lawsuits and regulatory changes, is expecting another challenging year ahead.

In its annual report, Chairman and CEO Tan Sri Lim Kok Thay said the steep increases in casino duties and license fees announced in last year’s budget are likely to begin to bite into earnings from 2019 onwards. As a result, the group will continue to review its cost structure.

“This includes reducing or delaying capital expenditures and the implementation of various cost rationalisation initiatives such as manpower optimisation,” he said.

The budget included a 10 percentage point increase in tax to 35 percent of gross gambling revenue, as well as hikes in annual license fees and dealer licenses. The increases were much higher than had been expected.

Management has indicated that the group’s EBITDA margin had been at about 35 percent prior to the tax hike and in a worst-case scenario that margin could shrink to 25 percent.

Some analysts say the cost-cutting program may harm the group’s VIP business.

The group posted a 10 percent contraction in its VIP business in the fourth quarter of last year, while the mass segment gained 4 percent.

“We are particularly concerned about the weak VIP business due to stiff competition,” analysts at TA Securities said in a recent note. “This is especially true for this year when the group is mulling over a cost rationalisation program, which may include cutting junket’s commissions, to mitigate the impact of an additional 10 percent gaming tax.”

Genting is now coming to the end of a RM10.4 billion ($2.5 billion) revamp of its Resorts World Genting property under the Genting Integrated Tourism Plan. The upgrades involved adding more non-gaming attractions, as well as expanding its casino floor space.

We are particularly concerned about the weak VIP business due to stiff competition.

Lim said the group was beginning to feel the benefits from the expansion, with visitation gaining 10 percent in 2018 to 25.9 million visitors. For 2019, the outlook for international tourism remains “moderately positive,” though geopolitical tensions may affect consumer confidence in certain economies, he added.

Last year saw the addition of more dining options at the SkyAvenue entertainment complex and the newly refurbished First WorldPlaza. It also opened Medan Selera, a halalcertified eatery and introduced RedTail and Empire by Zouk, two of the five distinctive destination zones in the expansive Zouk Atrium.

It also completed the soft launch of the newly refurbished Skytropolis Funland indoor theme park, which offers more than 20 rides for all ages, and rolled out The VOID, the first location-based hyper-reality experience centre of its kind in Asia.

However, the centerpiece of the upgraded resort was to have been an outdoor theme park in a joint venture with Twentieth Century Fox. Plans for the attraction remain mired in legal proceedings after the U.S. company pulled out of the venture in late 2018, prompting a breach of contract lawsuit from Genting and a counter-claim from Fox.

“The development plans and options for the outdoor theme park are being reviewed amid ongoing legal proceedings,” Lim said.

“The group remains committed to the outdoor theme park at RWG as a growth initiative in Malaysia.”

It’s not the only legal issue overhanging the company. On May 30th, the High Court is set to hear a challenge Genting has made to a Ministry of Finance amendment to tax incentives it received under the GITP program.

While in the U.S., the group says it’s continuing to work with the Mashpee Wampanoag Tribe to push for the reaffirmation of the Tribe’s land in trust status, which is needed for a planned resort development to go ahead.

Genting said it will work with the tribe in both the U.S. Congress and/or in federal courts to secure the affirmation. Genting recognised a loss of RM83 million last year, mainly due to an impairment loss from its investment in promissory notes to the tribe.

“The impairment loss can be reversed if and when the Tribe’s land rights are secured and the promissory notes are assessed to be recoverable,” it says.

Illegal lottery revenue tops legal business

Malaysia’s illegal lottery business is generating about 60 percent more revenue than the six legal operators combined, local media reports.

While the six collectively report about RM9 billion ($2.2 billion) in annual revenue and are subjected to about 20 percent in gaming and corporate taxes, the illegal rackets are said to be raking in about RM15 billion a year, the Sun Daily said.

The six legal number games companies are Sports Toto; Magnum 4D; Da Ma Cai; Sabah 88, Sandakan Turf Club and Sarawak Cash Sweep. The revenue of illegal 4D operations is said to have risen by at least 20 percent since last year.

In 2018, police conducted 12,162 raids nationwide on illegal 4D operations, compared to 9,931 in 2017.

Genting buys superyacht for $126m

Malaysia-owned superyacht “The Equanimity” has been sold to Genting Malaysia Bhd for $126 million.

The superyacht was one of many luxury items seized by the government as part of its 2015 probe into money laundering, after then Malaysia’s then-Prime Minister Najib Razak was accused of channeling over RM 2.67 billion (US$700 million) from 1Malaysia Development Berhad, to his personal bank accounts.

Attorney General Tommy Thomas said that the Malaysian government is appreciative of the offer made by Genting, given the group itself owns a shipyard that builds superyachts and operates a luxury yacht division on its own.