Tuesday, December 20, 2016

Journey To Retirement Part 1.3 -- Genting SP

Was quite eventful for Genting SP the past 2 months.  Firstly, on 11th Nov 2016, Genting SP announced the divestment of its stake in the Jeju IR in South Korea (refer here).  Then on 15th Dec 2016, Japan Government finally legalized casino after the idea was first debated in 2013.

The divestment of Jeju IR was quite a shocked to me given that next year the IR will commence operation and to divest without earning a single cent from it totally make no sense to me.  Though, the explanation given by the company -- after divestment, Genting SP will have a significant resources needed to be a strong candidate in the bidding process for the Japan IR should the casino bill being passed, still unable to convince me at that time given that the Japan casino bill has yet to be approved.

Then came 15th Dec 2016 the Japanese Government finally approved the casino bill as what Genting SP has been anticipated.  That piece of news probably cleared some doubts on Genting SP divestment on Jeju IR.

I see the divestment of Jeju IR could be more than just beefing up its financial position for the bidding of Japan IR.  This could be a key strategic move to increase its chance of getting the Japan IR.  Japan and South Korea are very close to each other (within an hour flight journey) and both can be considered key tourist attraction spot due to their deep and unique history, culture and tradition.  As such, both can be considered as competitor at many aspect especially relating to economy.  Should Genting SP still having a stake in Jeju IR, the Japanese Government might see it as conflict of interest and thereby reduce its chance in winning the bid.  From the perspective of a company, having IR in both the country collecting revenue from each is always the best scenario but that will not be the case if you look from the Government perspective for sure.  Hence, for Genting SP to execute such a move could show the Japanese Government its determination and commitment to the Japanese IR.

With most expecting Japan IR to be first operational in 2022 and based on the timeline of Singapore IR (2006 bidding and 2010 soft opening), the timing for the bid could be either next year or 2018.  The chance of Genting IR in winning the bid is not going to be as easy as what it did for Singapore IR back in 2006.  The following obstacles are what I see Genting SP could be facing.

1.  There are already 3 others casino operators (Wynn Resorts, MGM Resorts International and Las Vegas Sands) openly declared their interest in the Japan IR and could be more when the bidding start.  With the Japanese Government is believed to have 2 or at most 3 IR initially and that would be like at least 4 will be going after 2 or 3 spots and at least 1 or 2 will lose out in the end.  

2.  Foreign investment in Japan is not so straight forward as any foreign company will need a joint-venture local company, this is the Japanese policy in protecting home-based businesses.  This is just so unlike that of Singapore, sigh..................Therefore, finding a good and correct partner can in a way affect its chance in winning the bid too.

3.  The theme of IR will be crucial.  Genting SP definitely cannot use the Resort World Sentosa theme as there are already an Universal Studio and a Disneyland in Japan.  Neither could it adopt to the plain Marina Bay Sands theme.  It is not like in 2006 when the IR concept was new to the world then, the focus now will be heavy on its theme, how the theme is unique to the rest of the IRs in the world.  Japanese are renowned of being very patriotic, proud of their culture and tradition and hence ability to fit in the Japanese culture and tradition into the IR theme looks very much what the Japanese Government has in mind.  This on the part of Genting SP has to do the research comprehensively.

The Japanese IR appears to be a die die must get for Genting SP as just with a Singapore IR is unable to provide much growth to the company having to face strong competition from Macau, South Korea and Japan.  The one concern any shareholders of Genting SP should take it seriously is what happen if Genting SP fails to win the Japan IR ?  Will it go back to buy back the Jeju IR stake ?  Perhaps is time to question the management on this in the next AGM.

Singapore introduces the concept of IR to the world but given the quality and quantity of the tourists to Japan than Singapore, IR fits well for Japan than Singapore.  Like mentioned before (refer here and here), Japan IR will be the final chapter of my investment journey in the company.  Excited will be if it can win but then it also signals I have to monitor for divestment sign.


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