This article first appeared in Corporate, The Edge Malaysia Weekly, on June 27 - July 3, 2016.

WITHOUT the persistence and favour won by the late Tan Sri Lim Goh Tong, “there would be no Genting” and Malaysia would not have the highland casino-resort that today not only houses the world’s largest hotel but also the world’s first Twentieth Century Fox World theme park. He also had the foresight to aid the US native tribe Mashantucket Pequot’s casino venture in 1991 when bankers shied away.

But it was under his son and incumbent Genting group chairman and CEO Tan Sri Lim Kok Thay’s stewardship that what started out as a 200-room hilltop hotel half a century ago found its way across the globe over the past decade. From an unknown when it bought Stanley Leisure’s UK casino chain in late-2006, Genting, in the same year, won one of Singapore’s two integrated resort licences alongside the world’s largest casino company — US casino magnate Sheldon Adelson’s Las Vegas Sands Corp.

Genting’s S$6.6 billion bet on Resorts World Sentosa, which opened in January 2010, gave it a second cash cow. Using excess cash from its Malaysian and Singapore operations, the group extended its reach to the US, starting with Resorts World New York City in 2010 before taking on Walt Disney Co’s home base Florida by buying bay-front land in Miami in 2011. Five years on, Resorts World Miami is still without a casino licence but works are underway to monetise Resorts World Bimini, an island in the Bahamas east of Miami. The US$4 billion Resorts World Las Vegas is slated to open in 2018.

Pointing to the slowdown and possible overcapacity in Macau, where Genting’s presence is immaterial, Lim reckons that “gaming has been oversold” globally in recent years and agrees that the door to new casino licences “is smaller” now than before. “It is going to be more crowded, more competitive,” Lim says. Yet, there are opportunities that “remain open to Genting”.

Lim does not want to be known as a casino magnate, though. After all, the group’s businesses include cruises, oil palm plantations, power plants, real estate and biotechnology. Talking about the wider Genting group’s investment in promoting winter sports in China, Lim says Genting is today better received by mainland officials because of its many non-gaming ventures.

Now, Lim, who turns 65 in August, is steering the group towards higher frontiers like genomics and medicine — “not so much for making money” but more to see where his “interests” take him.

“I believe medicine, health and well-being will be game changers. Hopefully, we’re able to assist in finding some cure or improvement in terms of diseases or some environmental situation the world is facing at the moment. If I make some money along the way, why not?” Lim says in a recent interview.

In fact, rather than a new casino licence, what has excited investors the most about the group in the past six months is Genting Bhd’s 20.6% stake in TauRx Pharmaceuticals Ltd. TauRx, in which Temasek Holdings Pte Ltd is an investor, is said to be in the final stage of completing Phase 3 clinical trials of a new drug known as LMTX to treat Alzheimer’s. The results are slated for release in 3Q2016 or early next month. Success could see mega returns from Genting’s US$120 million-plus investment in the form of a US$15 billion valuation for TauRx and a Nasdaq initial public offering (IPO) as early as 2017, The Wall Street Journal reported late last year, citing unnamed people. In March, RHB Research estimated that Genting’s stake could be worth US$2.2 billion if indeed a US$15 billion IPO materialises and its stake is diluted to 15%. On the flip side, bad news about TauRx could hit the stock.

Lim downplays prospects of Genting hitting the jackpot when asked if anything is close to commercialisation and if good news is expected within a year: “I don’t know. I’m not the brains behind it,” he says.

“Fingers crossed, I hope it is closer than ever before. But it is only a hope. Maybe it will remain a wish but if only a small part of it becomes real, I think it would be very satisfying,” he adds, acknowledging the importance of the group staying profitable. “Without profits, you cannot invest further.”

Lim continues: “I think the next two years would be interesting when the pattern settles in terms of the respective companies within the group. We’re fortunate to be in areas where despite the slowdown, like in the past, we should be able to weather the storm.

“I think the strength of the group is in its management philosophy and culture from my late father. He always advised that one should not over-leverage in business. Don’t borrow money. Be a depositor. I find that hard to maintain because nowadays, businesses have to borrow some.”

In FY2015, Genting Malaysia lost the net cash position it had maintained since FY2006 with borrowings rising to RM4.62 billion versus RM4.52 billion cash on sharply higher long-term borrowings. The same was seen at Genting Bhd. Genting Singapore was still in a net cash position, though, as was Genting Hong Kong Ltd.

Even so, Genting Hong Kong — which just made a massive €3.5 billion order for 10 cruise ships to be delivered through 2021 to capture a larger share of the burgeoning Chinese and Asian cruise market — is likely to be the most leveraged among Genting’s five public-listed namesake companies in Malaysia, Singapore and Hong Kong. Its cash needs in the coming years would likely exceed that generated by Resorts World Manila, which still requires cash for its Phase 3 expansion through 2018. Genting Hong Kong has been raising cash by paring holdings in its one-time associate company Norwegian Cruise Line Holdings Ltd (NCL) — to 11.2% as at May 30.

Genting Malaysia has the choice to sell its 16.87% stake in Genting Hong Kong if there is an offer above US$415 million (RM1.62 billion) or 29 US cents apiece, including from the Lim family, which already controls over 50% of Genting Hong Kong — the reason a lucrative third party offer may never come. Already, the minimum offer is below Genting Malaysia’s original cost.

That the Genting group had in the past decade invested tens of billions of ringgit in new ventures abroad had not gone unnoticed by investors, a number of whom had wanted more dividends, especially from Genting Malaysia — which in February surprisingly doubled its investment commitment to the 10-year Genting Integrated Tourism Plan (GITP) to RM10.38 billion amid speculation of a cost overrun.

While Genting Malaysia had gradually raised dividends, total payout in the past five years stayed largely below 30% with yields averaging below 2%.

On how long minority investors may have to wait for a bigger share of the extra cash generated by the flagship hilltop casino, one observer notes that the group’s mega ventures outside Malaysia and Singapore only made up 5% (about RM302 million) of Genting Bhd’s earnings before interest, tax, depreciation and amortisation (Ebitda) in 2015. That 76% or RM13.61 billion of revenue and 95% of Ebitda came from Malaysia (RM3.16 billion or 50%) and Singapore (RM2.83 billion or 45%) means higher margins back home.

Footfall is also larger back home. New York City’s 8.5 million population edges out the Klang Valley’s 7.2 million but Genting Highlands welcomes an average of 20 million visitors a year compared with 8.5 million visitations to Resorts World NYC. Resorts World Genting expects to see 30 million visitors a year by 2020 — a figure that could well make the investments worthwhile if it can indeed be achieved.

Genting can choose to do nothing: “If it is a cash cow, it is okay to be stagnant,” Lim admits. Yet, with so many theme parks being built across Asia, he says it is only right that it invests to make its flagship hilltop resort attractive for many more years to come.

On the gestation period, Lim says, “That’s the nature of the business. Genting usually invests for the long term … we may not always optimise the return but we also make sure we don’t lose money for our shareholders.” He adds that the group also takes care to be prudent by not taking on too much at one go. Genting Singapore, for instance, is focused on delivering Resorts World Jeju, South Korea, by the end of next year.

Lim enjoys his work and says he will continue to work for as long as he finds enjoyment in it. “My philosophy is that I will continue to do things that I’m interested in and which are relevant to the stage of life I’m in. I’m fairly well off. 

“Is it a matter of trying to make more money? I don’t think so but nobody complains if one gets more. Do I go out and seek that? I think not really but I do want to make sure that the cruise business that we started will remain competitive and hopefully even become a leader … being 

No 1 in terms of providing that [cruise] experience, the game changer … that’s more important to me than how much money it makes. Similarly for genomics.”

Whether or not that is reason enough to stay invested, there were more analysts who were “neutral” on these stocks than those saying “buy” or “sell” at the time of writing.

Bloomberg data shows that Genting Malaysia generated 3.5% to 5.6% annual returns a year in the past five years and about 6.6% to 8.9% annual returns in the past decade. Over a 10-year period, Genting Bhd showed similar annual returns of 6% to 8%, Genting Singapore returned about 10% a year while Genting Hong Kong delivered about 4.5% to 5%. Five-year returns, however, were negative for the latter three.

Lim is right about not losing money in the long term but investors who are not trading on newsflow will need to decide for themselves if they are satisfied with the single-digit returns while expansion goes on. 

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