GenM: Sailing Into a Storm?

4th April 2019 Off By binary
GenM: Sailing Into a Storm?
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Many Malaysians are overjoyed to hear the news that the infamous luxurious yacht, Equanimity was successfully sold off for USD126 million (or, RM514.6 million). The buyer is a wholly-owned subsidiary of GenM. For more, go here.


Equanimity in Calm Water (Source:Malaysiakini)

Now, the shareholders of GenM must ask the question: How much return would an investment of RM514.6 million in a luxurious yacht generate?

Samples of Super Luxurious Yachts for Rent (Source: Charterworld)

Let’s assume that the yacht was acquired for rental purpose. A quick check on Charterworld’s website shows the rental rate for a luxurious yacht comparable to Equanimity to be more than USD300,000 a week. Assuming Equanimity is rented out at USD500,000 a week for 20 weeks in a year, then the revenue would be USD10 million a year. Will it turn in a profit? Let’s see…

It was reported that the maintenance cost of Equanimity for 5 months when it docked at the Royal Malaysian Navy’s HQ in Langkawai to be RM11 million (here). This sum may be understated as some costs may be waived by our navy. Assuming that it was the true figure, then the total maintenance cost for a full year would be RM26.4 million (or, USD6.5 million). On top of this, we have to add in the running cost of the yacht (with additional crew, food & fuel supplies) for 20 weeks when it is on rental. If we assumed these additional costs to be about 30% of the rental rate, then the operating cost would be USD150,000 a week or USD3 million a year.

Now we can compute the profit of this investment:

Profit = Income of USD10 m – [Maintenance cost of USD6.5 m + Running cost of USD3 m].

Profit = @#$%& (My calculator is not working!!)

Disclaimer: I am not an expert in luxury yacht rental. The above projection could have under-estimated the rental rate & over-estimated the maintenance costs. On the other hand, the projection could have over-estimated the rental period & under-estimated the running costs. If we want to be generous, it is possible that Equanimity could turn in a tidy profit of USD3-5 million if the variances are all positive. Alternatively, GenM can always operate Equanimity as an exclusive high roller casino yacht. No license is needed if it sailed into international water.


Chart: GenM’s weekly chart as at April 3, 2019 (Source: Malaysiastock.biz)

The uncertainty of this enormous investment reinforce my preference for Genting over GenM.

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