Company Overview of Domestic Direct Competitors of Sime Darby
COMPANY OVERVIEW OF DOMESTIC DIRECT COMPETITORS OF SIME DARBY (GENTING BERHAD) Genting Berhad (Genting), a holding company for the Genting Group, operates resorts, casino and plantations. It also develops properties, manufactures paper and generates electricity. The company primarily operates in Malaysia. It is headquartered in Kuala Lumpur, Malaysia and employs 36,000people. The company recorded revenues of MYR6,943. 8 million (approximately $1,968. 3 million) during the fiscal year ended December 2006, an increase of 27. 3% over 2005. The operating profit of the company was MYR3,124. million (approximately $885. 7 million) during fiscal year 2006, an increase of 22. 7% over 2005. The net profit was MYR2,242. 5 million in fiscal year 2006, an increase of 23. 8%over 2005. SWOT ANALYSIS Genting is the management and investment holding company of Genting Group. Through its subsidiaries, the company provides leisure and hospitality, cruise and entertainment businesses. Genting also operates plantations, develops and manages property, power generation, manufactures and trades paper, explores oil and gas and provides tours and travel related services.
The continued success of its leisure and hospitality business, driven by a strong performance from Genting Highlands Resort and its gaming business, has improved overall revenue and profit growth for the company. However, regional competition from new leisure attractions such as Disneyland and Macau’s strong position in the gaming business could weaken the company’s leisure and hospitality business. Strengths •Diverse business portfolio •Strong leisure and hospitality division •Strong performance of oil and gasWeaknesses Weak performance of property and manufacturing divisions •Weak returns Opportunities •Growing wealth of Asian population •Government initiatives to promote Malaysia •Strong outlook for China’s energy sector •Rising demand for biodieselThreats •Intense competition •Natural disasters and epidemics •Weakening demand for residential housing STRENGTHS •Diverse business portfolio Genting has a diversified business portfolio, which includes the management of casinos and resorts, plantations, property development, paper manufacturing and power generation.
Aided by strong growth in most of its business divisions in fiscal year 2006, Genting managed to record an increase of 27. 3% in its revenues over fiscal year 2005. The revenues from leisure and hospitality division increased 20. 9%; power 89. 1%; plantation 10%;and oil and gas 19. 8%. The company is not overly dependent on any one product or business division. Its diversified business portfolio protects it from downturns in any particular division and reduces business risk. •Strong leisure and hospitality division The company’s leisure and hospitality division has continuously contributed the highest revenues for Genting.
The leisure and hospitality division operates the company’s hotel, gaming and entertainment businesses. In fiscal year 2006, the division recorded revenues of MYR4,286. 9 million(approximately $1,215. 2 million), contributing 61. 7% to the company’s revenues. This increase is mainly due to the higher volume of business from Genting Highlands Resort. For the period 2002-2006, the leisure and hospitality division grew at a CAGR of 12%. The division’s strong performance is attributed to the overall success of the company’s theme resorts which are becoming Malaysia’s leading tourist destinations.
The company’s gaming business, which operates its casinos both locally and internationally, has also posted strong results in recent years. Strong performance from the leisure and hospitality division has improved overall revenue and profit growth for Genting. •Strong performance of oil and gas Revenues for the oil and gas division of Genting have consistently improved in recent years. Although the division contributed just 2% to Genting’s revenues in fiscal year 2006, it recorded revenues of MYR141. 3 million (approximately $40. 1 million), a 19. % increase over the previous year. From 2002-2006, the oil and gas division grew at a CAGR of 29%. The phenomenal success of the division is attributed to significantly higher oil prices and increased production. Genting expects an even stronger growth for the oil and gas division in the future from increased oil production in Muturi (Indonesia) and China. WEAKNESS •Weak performance of property and manufacturing divisions Despite an increase of 7. 7% in fiscal year 2006, the property division’s revenues have been volatile over the recent years.
For the period 2003-2006, the division’s CAGR was -6%, the lowest among all the company’s business divisions. Despite a 6% increase in revenues, the manufacturing division’s profit before tax declined 44% in fiscal 2006 over the previous year. Weak performance of these divisions would affect the overall growth of the company. •Weak returns Genting has recorded weak returns in the last few years. Its return on investments and return on equity for trailing twelve months (TTM) December 2006 were 10. 2% and 13. 5%, respectively, lower than the industry averages of 10. % and 16. 8% for the same period. Weak returns reflect the inability of the management to deploy assets in profitable avenues, and this could result in decreasing investor confidence. OPPORTUNITIES •Growing wealth of Asian population Strong economic growth is expected to improve the spending habits of leisure travellers in the Asian region. A number of Asian countries are expected to record a significant CAGR in GDP per capita in the next five years, including: China (10. 1%), India (8. 1%), Thailand (7%), Singapore and Malaysia(6. 6%).
Consequently, disposable income in these countries is expected to grow in the next five years. India’s disposable income records the highest CAGR of 11. 1%, Thailand, 8. 4%, China, 8. 1%,Malaysia, 5. 5% and Singapore, 5. 3%. Genting’s foreign visitors mostly come from these countries. As such, the company stands to profit from the improving economic conditions of these markets. Rising income levels will increase demand for leisure and hospitality services. •Government initiatives to promote Malaysia The importance of tourism to the Malaysian economy has grown considerably in recent years.
The joint efforts of Malaysia’s Tourism Ministry and Malaysia Tourism Promotion Board (MTPB) to stimulate tourism activities are expected to result in higher tourist arrivals in Malaysia. The MTPB hosts trade, tourism and consumer fairs around the world to promote the country’s culture and tourist attractions. In fiscal year 2005, there were a total of about 15. 8 million international arrivals in Malaysia. Annual targets announced under the Ninth Malaysia Plan (2006-2010) include an increase in international arrivals from 17. 3 million in 2006 to 20 million by 2010.
In addition, the Malaysian government recently announced a five-day work week for civil servants, which translate to a greater number of holidays available for Malaysians. Also, the presence of low-fare air travel will boost the leisure and tourism industry in Malaysia. This positive outlook of Malaysian tourism presents the company with growth opportunities. •Strong outlook for China’s energy sector Demand for worldwide energy is expected to report strong growth until 2025. Energy demand from China is expected to grow by an average of 3. 2% annually until 2025, to reach a volume of 14. 2million barrels per day (bbl/d).
Genting has consistently expanded its oil and gas assets including the acquisition of four power plants in China. China is the world’s second largest consumer of petroleum products and the company stands to benefit from the growth in China’s energy sector. •Rising demand for biodiesel The European Union has a target of replacing 5. 75% of diesel with renewable sources by 2010. In view of this growing European demand for bio fuels, the Malaysian government is encouraging the use of palm oil to the production of biodiesel. The country is also preparing to change from diesel to bio-fuels in the near future.
It has stipulated that from 2007, all diesel sold in Malaysia must contain5% palm oil. The plantation division of Genting is involved mainly in oil palm plantations, palm oil milling and related activities. It could therefore take advantage of the new opportunity to improve its revenue growth. THREATS •Intense competition Genting’s leisure and hospitality division is expected to face stiff competition from new leisure attractions in Asia. Disneyland Hong Kong, which opened in September 2005, has emerged as a key competitor The Disneyland attracted approximately 5. million visitors in its first year of operation and is expected to increase to about 10 million annually. Genting is also facing competition from casinos in Macau. Macau has at least fourteen casinos, of which the biggest is the Casino Lisboa. Four casino resorts are scheduled to be launched in the next few years in Macau. Disneyland Hong Kong and casinos in Macau could draw tourists away from Genting’s leisure and hospitality locations, which would reduce revenue growth. •Natural disasters and epidemics The leisure and hospitality is vulnerable to natural disasters and epidemics.
In 2003, the outbreak of Severe Acute Respiratory Syndrome (SARS) adversely affected the Star Cruises operation. Star Cruises was also badly affected by the tsunami in 2004. In 2005-2006, outbreak of bird flu affected the leisure and travel industry including cruises. Natural disasters and outbreak of epidemics such as SARS and bird flu in the future could reduce tourist traffic to resorts, casinos and cruise ships of Genting, which would pull revenue growth down. •Weakening demand for residential housing Demand for residential properties in Malaysia is weakening.
Demand for housing in 2006 was lower than 2005. Moreover, the Malaysian GDP growth for 2007 is expected to be 5. 0% down from 5. 8%in 2006 which could have a corresponding effect on Malaysian housing. The company has a significant presence in residential housing. It has recently launched two residential properties: Asiatic Cheng Perdana and Asiatic Indahpura. Excess supply in the Malaysian residential property market and the consequent fall in property prices would negatively impact the performance of Genting’s property division.
