Genting Malaysia is planning to subscribe for additional USD100m preference shares in Empire Resorts Inc, a US gaming JV with the Genting’s founding Lim family. Despite the sensitivity of a related-party transaction, the proposal aims to bolster Empire’s balance sheet. Kenanga maintain its forecasts on this latest exercise but tone down its TP by 5% from RM3.07 to RM2.90 and outperform call to market perform.
The Lim family is believed to have invested in Empire, which was listed then, in early 2009 before taking a controlling stake in 2016. Feb 2018 – Resorts World Catskill (RW Catskill), a casino resort sitting on 1,700-acre with 1,600 slot machines, over 150 tables and 332-all suite hotel opened 90 minutes away from New York City.
March 2020 – US authorities suspended all gaming resort operations including RW Catskills to help contain the spread of COVID-19. Sept 2020 – RW Catskill resumed operation but on reduced capacity and restricted hours. Empire eventually reported positive EBITDA in 1QFY21 but continued to report net losses till 3QFY23. March 2022 – Mobile sports betting commenced in New York. Dec 2022 – Resorts World Hudson Valley (RW Hudson Valley) opened a 90,000 sf facility with 1,200 video lottery terminals.
In Nov 2019, GENM acquired 49% of Empire from the Lim family private vehicle, Kien Huat, for USD160m (RM661m) before proceeding to take Empire private. Since then, Kien Huat has invested USD524m in Empire while GENM has invested
USD624m into common and preference shares to support Empire’s operations, expansion and refinancing. After this proposal, GENM would have invested USD724m in Empire and able to recognise 89.6% of Empire’s losses/profits, up from 76.3% previously. However, Empire will remain an associate of GENM as Kien Huat retains control over the board of Empire; hence, the sensitivity over the related-party nature of this investment.
The house keeps its FY23-24F earnings intact as GENM is essentially using its balance sheet to bolster an investment with 89.6% economic interest. More importantly, we expect Empire’s operations to gradually normalise with profits to show over the next 2- 3 years.
Downgrade from OUTPERFORM to MARKET PERFORM. Kenanga believes its key earnings driver, Resorts World Genting, is benefitting from the normalisation of domestic and regional travel. Visitors from China may still need time to recover to pre-pandemic level but the trajectory is encouraging thus far. As such, the house continues to like GENM as an earnings recovery play.
However, it is imputing a 5% discount to our previous SoP-driven TP of RM3.07 to arrive at a new TP of RM2.90.
