The Three Numbers That Stress Genting Berhad

Leisure and recreation are the hallmarks of Genting Berhad (KLSE: 3182.KL; KLSE: GENTING). The company is not only one of the global leaders in hospitality and gaming but it is also one of the largest cruise liner companies in the world. It also has exposure to energy and interest in pharmaceuticals too.

By any measure, Genting Berhad is a RMB30 billion behemoth. Its tentacles stretch to Singapore’s integrated resorts through Genting Singapore (SGX: G13), to cruise ships in Hong Kong through Genting Hong Kong (SEHK: 678) and to a raft of casinos in the UK through Genting Malaysia Berhad (KLSE: 4715.KL; KLSE: GENM). It also has its fingers in palm-oil plantations and property development through Genting Plantations (KLSE: 2291.KL; GENP).

However, there is no guarantee that large companies are always more efficient. Last year, Genting Berhad generated less than RMB5 of net income on every RMB100 of shareholder equity. That said, the Returns on Equity of conglomerates such as Jardine Matheson (SGX: J36) and Jardine Strategic Holdings (SGX: J37) can be quite low too.

Genting Berhad’s low RoE can be put down to a number of things. Its Net Income of 9.7% is not especially low. It means that the conglomerate generated MYR9.70 on every MYR100 of revenues.

However, it only generated MYR22 of revenues on every MYR100 of assets at its disposal. By comparison, the market average is about twice that. Rival Sime Darby Berhad (4197.KL; KLSE: SIME) managed an Asset Turnover of 0.8 or MYR80 on every MYR100 of assets employed.

Genting Berhad is not excessively leveraged, either. It had Total Liabilities of MYR2.7 billion and Total Assets of MYR7.2 billion. That equates to a Leverage Ratio of 1.42, which is quite modest.

By deconstructing the Return on Equity for Genting Berhad, it is easy to see why it looks stressed. Its RoE of 3.1% is the product of a moderate Net Income Margin of 9.7%, a meek Asset Turnover of 0.23 and small Leverage Ratio of 1.4.

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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.