GentingM will also act as the manager of the integrated resort with tenure of management expected to be seven years, commencing from the opening of First Light.
KUALA LUMPUR: UOB Kay Hian Malaysia Research is retaining its Hold call for Genting Malaysia (GentingM) over the delay in the proposed development of the integrated gaming resort in Taunton, Massachusetts, in the US, on a piece of tribal land.
It said on Monday it retained its earnings forecast and an unchanged sum-of-parts based target price of RM5.15, which implies enterprise value/earnings before interest, tax, depreciation and amortisation (EV/Ebitda) of 11.7 times/9.8 times for 2017/18.
“While we do not factor in any potential earnings enhancement from the tribal casino, GentingM’s RM1.49bil investment in the tribal promissory notes represents 25 sen a share. Should there be a need to write-off such impairment, it would pose a downside risk to GentingM’s fair value. Entry price is RM4.80,” it said.
Last Friday, GentingM announced that the US Department of the Interior (DOI) set a timeline of Aug 31, 2017 for the Mashpee Wampanoag Tribe and the plaintiffs (local Taunton residents) to submit materials to facilitate the additional analysis of the legality of the tribe to pursue the development of the resort on its initial trust land in Taunton.
UOB Kay Hian Research pointed out the DOI had also given them until Oct 30, 2017 to reply to the opposing submissions. Meanwhile, the Tribe’s lands remain in trust unless ordered by a court to take it out of trust.
To recap, GentingM had in April 2016 announced that the company had subscribed to the promissory notes issued by the Mashpee Wampanoag Tribe to finance the pre-development expenses of the integrated resort.
GentingM will also act as the manager of the integrated resort with tenure of management expected to be seven years, commencing from the opening of First Light.
However, this project has drawn controversy as the legality of the casino is challenged, causing the casino’s construction to grind to a halt last summer and concerns of GentingM’s investment in the promissory notes being at a risk.
“The total amount invested in the interest-bearing promissory notes (including accrued interest) as at June 30, 2017 amounts to US$347mil (RM1.49bil).
“While the US DOI has set new a timeline for the tribe and plaintiffs to submit supporting materials and to reply to opposing submissions by October 2017, the timeline for final decision is unclear at the moment.
“This is expected to leave GentingM’s RM1.5bil investment value in the promissory notes unchanged for now, until the resolution of this legal case is available,” said the research house.
UOB Kay Hian Research said GentingM will work with the tribe to review “all options available” for its investment in the promissory notes and will also “assess its recoverability and impact” to the company for consolidated earnings and net assets for 2017.
“We assess that a favourable judgement would only have a very modest interim impact on GentingM’s earnings (as a fee-based casino manager), while an unfavourable outcome could result in a full write-off of this particular investment (although there could be residual value from this investment should the project be called off),” said the research house.
Limited time offer:
Just RM5 per month.
