Quick take: Genting Malaysia tumbles 10% on shareholders fret over Empire acquisition

KUALA LUMPUR: Genting Malaysia Bhd’s (GenM) shares tumbled by over 10% in early trade Wednesday, after announcing that it would acquire Empire Resorts Inc, from Tan Sri Lim Kok Thay, via Kien Huat Realty III Ltd.

The gaming stock fell 10.25%, or 37% to RM3.24, making it the top losers on Bursa Malaysia with 148.55 million shares done. Separately, Genting fell 3.61%, 24 sen to RM6.41.

GenM said its wholly owned Genting (USA) Ltd has proposed to acquire 13.2 million shares in Nasdaq-listed Empire Resorts Inc from its single largest shareholder Kien Huat Realty III (KH) for US$128.6mil (RM538.8mil).

It is further proposing a joint venture between GENM and KH to gain full control of Empire Resorts.

The 13.2 million shares currently represents approximately 46% of the shares of common stock held by KH and which also represents approximately 35% of the outstanding voting power of Empire on a fully diluted basis after conversion of all preferred stock currently outstanding into common stock.

KH is currently the largest shareholder of Empire, owning approximately 28.91 million shares or 84% of common stock.

The company owns and operates Resorts World Catskills (RWC), a casino resort situated on a 1,700-acre site in Sullivan County, New York in America. Empire also owns and operates Monticello Casino and Raceway.

On the rationale for this move, GENM said that this would better position the Resorts World brand in the northeastern US gaming market through more effective cross marketing with Resorts World Casino New York City.

RHB Research is neutral on the proposals and believed that the total acquisition price of US$180mil (RM754mil) for GenM to own 49% of ER via the proposed JV was insignificant, at c.3.5% and 4.3% of GenM’s market cap and net assets.

“While the acquisitions are not value accretive (at 1.9x P/BVvs GENM’s current P/BVof 1.2x) and may negatively affect our earnings forecasts, the acquisition price appears to be fair compared to the potential GGR of over USS$200mil and US$1bil cost to construct RWC,” it said.

The research house added that undertaking a similar greenfield expansion of such a scale (along with a licence) would likely cost more, based on its estimates.

RHB has reiterated its “buy” call on GenM with an unchanged SOP-derived target price of RM4.40, 22% upside plus 4.4% FY19F yield.