Would Warren Buffett Buy Genting Singapore?

Genting SingaporeWhat exactly is Genting Singapore (SGX: G13)? Is it a casino operator? That it certainly is.

Is it an owner of hotels and restaurants? It has its hands on a few of those too. Or is it a developer of resorts and theme parks? It does some of that also.

So if we had to use one word to describe what Genting Singapore does, it would probably be “entertainmentThe company provides entertainment services for all age groups from adults  to things that kiddies and youngsters like to do.

But what would Warren Buffett make of Genting Singapore?

One thing that Warren Buffet would be on the lookout for is low earnings volatility. On that score, both revenues and bottom-line profits have been somewhat lumpy over the last ten years, But since 2010, the financial performance has been considerably steadier as the company’s Resort World Sentosa gradually brought its string of hotel, restaurants, theme parks and casinos on stream.

Over the last four years, when things at Genting really started to kick off in earnest, top line sales have been steady at around S$3b, while bottom line profits have been about S$700m. The company’s Net Income Margin is something to die for, too. At around 25%, it is one of the highest amongst Singapore’s blue chips.

The company is not massively efficient though. But that might be because of the large asset base it needs to run its various services. At around 0.2, Genting’s Asset Turnover is about half that of the 30 companies that make up the Straits Times Index (SGX: ^STI). It implies that the company generates 20 cents in revenue for every dollar of asset employed.

Buffett likes to see a strong balance sheet. That is something that Genting can be proud of. It has cash and short-term investments of S$4.6b and total debts of S$2b, which means it has net cash of S$2.6b.

Buffett also likes see companies with low specific stock risk. In other words, he is not enamoured by volatility that can’t be explained by macroeconomic activity.  In this regard, Genting scores well. Its share price volatility is slightly lower than the market.

Currently, Genting is valued at S$16.3b, which is around 70% above its book value. In the main, Buffett likes to buy businesses close to or below their book values. And this might be the deal breaker in the case of Genting. It doesn’t make Genting a bad company. Just one that doesn’t have quite enough of a margin of safety at the moment.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.