Is Genting Singapore PLC Making Good Use Of Its Billions In Cash?

Genting Singapore PLC (SGX: G13) is supposed to be an easy business to understand.

The company had built a multi-billion asset that opened in 2010 – the integrated resort many Singaporeans are familiar with, Resorts World Sentosa. With the resort up and running, Genting Singapore’s job is simply to draw people to the resort’s casino and other attractions.

But, Genting Singapore’s balance sheet and income statement suggests that the business is a lot more complicated. This is especially so with the way Genting Singapore has been handling the huge amounts of cash generated from its operations. Instead of distributing the excess cash from its business as dividends (Genting Singapore’s dividend in 2015 is just 17% of its free cash flow), the company has been actively investing its cash in financial assets.

Have the investments been a good use of the money? Or should Genting Singapore simply return more capital to its shareholders?

Since the opening of Resorts World Sentosa, Genting Singapore has held investments in equities, bonds, and other derivative products. In 2013, the company had S$1.86 billion in Available-for-sale financial assets that comprises quoted and unquoted equities, bonds, and other financial derivatives.

But due to the lack of disclosure on what these investments are, it is hard to know if Genting Singapore has been profiting from these investments. Based on the annual fair value gains or losses from its derivatives investments, it seems that Genting Singapore’s investments might even be in relatively risky financial assets.

Gentin Singapore
Source: Genting Singapore’s annual reports

As you can see in the chart above, while the company managed to post fair value gains from its derivatives investments in 2012 and 2013, those gains have been more than offset by the fair value losses experienced in 2014 and 2015.

These fair value gains and losses are significant. In 2013, the fair value gain contributed more than 17% of Genting Singapore’s net income. Meanwhile, the fair value loss in 2015 was over three times the firm’s net income.

Moreover, the company often reports significant “Other Operating income”  of which very little information is disclosed.

So, has Genting Singapore actually managed to profit from its complex investments? Or has it been losing money on its financial adventures? Is it really worth the trouble for the company to be engaging in such investments? Why wouldn’t Genting Singapore simply return more cash to its shareholders in the form of dividends and let them decide how they want to spend the money? And if Genting Singapore is willing to risk its excess cash by investing in financial assets, shouldn’t it at least provide more details on its plans for excess cash?

I have tried to reach out to Genting Singapore for an explanation on these issues but have not gotten a response.

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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 writer Stanley Lim doesn’t own shares in any companies mentioned.