Genting’s Big Move: Will the VTO Fix a Low-Return Giant?

[i4value]

Genting has been in the news recently with its voluntary takeover (VTO) proposal to acquire the remaining 51% of Genting Malaysia Berhad that it does not already own.

In my article written before this announcement, I raised concerns about Genting’s weak ROIC, weighed down by a high fixed-cost base. I viewed Genting more as a defensive cash generator than a true growth compounder. 

The VTO signals strategic intent — to unlock better capital allocation, simplify the group structure, and pursue big-ticket ambitions such as potential U.S. expansion.

The move does not change Genting’s underlying operational and efficiency challenges; those remain the key hurdles to long-term value creation.

The weakness lies in capital efficiency — ROIC has rarely cleared 7%.  EPS has shrunk over the past decade, and large expansions like Resorts World Las Vegas have lifted fixed costs without delivering matching returns. Unlocking value depends on redeploying cash into higher-return projects and narrowing the gap between ROIC and WACC.

The VTO may simplify Genting’s structure, but only higher returns — not bigger bets — can fix a low-return giant.

[CY09]

Before COVID, Genting Berhad's ROIC (ex impairment) was above 18% due to good profits and leverage. However, as Genting Highlands as a destination is not able to grow much + Genting Singapore is not contributing many profits; naturally the parent has stagnated

The resort business requires a huge capital outlay for initial building and subsequent decades of refurbishment. I suspect what is going to happen is that if Genting berhad is successful in taking itself private, it will try to milk its children company to feed the parent and let the owner "now private" projects be successful. Genting Hong Kong has collapsed and is noq being liqudated. The only less levered and cash rich child is Genting Singapore, which the parent can milk and destroy it in the process; this is probably how Berhad plans to finance its VTO. If successful, we could see Genting Singapore pay 100% payout ratio to shareholders (including berhad); while genting singapore taps on singapore's banking sector to obtain 1-2% financing rates for CAPEX (Las Vegas Sands using Singapore government's influence obtained less than SORA rate financing as part of negotiation for expansion)

I believe thats the end game too for Genting Berhad--> Making Genting Singapore into a leveraged company while taking the dividends to delever the parent

[CY09]

Before COVID, Genting Berhad's ROIC (ex impairment) was above 18% due to good profits and leverage. However, as Genting Highlands as a destination is not able to grow much + Genting Singapore is not contributing many profits; naturally the parent has stagnated

The resort business requires a huge capital outlay for initial building and subsequent decades of refurbishment. I suspect what is going to happen is that if Genting berhad is successful in taking itself private, it will try to milk its children company to feed the parent and let the owner "now private" projects be successful. Genting Hong Kong has collapsed and is now being liquidated. The only less levered and cash rich child is Genting Singapore, which Berhad can milk and destroy in the process; this is probably how Berhad plans to finance its VTO.

If successful, we could see Genting Singapore pay 100% payout ratio to shareholders (including berhad)and to finance its CAPEX taps on singapore's banking sector to obtain 1-2% financing rates (Las Vegas Sands using Singapore government's influence obtained less than SORA rate financing as part of negotiation for expansion)

I believe that's the end game too for Genting Berhad--> Making Genting Singapore into a leveraged company while taking the dividends to delever the parent and finance its resort expansion (outside of Singapore)