Empire Resorts investment could be negative for Genting Malaysia, says CGS-CIMB

KUALA LUMPUR: With anticipated losses in Empire Resorts Inc over the next five years, CGS-CIMB Research said it is negative over Genting Malaysia Bhd's plans to purchase the gaming company' entire 1,510 Series F Convertible Preferred Stock from Kien Huat Realty Sdn Bhd (KHR).

Genting Malaysia said in a filing with Bursa Malaysia the acquisition for a total consideration of US$100mil (RM438.5mil) will be funded via internally generated funds and will bring its total investment in Empire Resorts from US$524.4mil to US$624.4mil to date.

According to CGS-CIMB, the full conversion of the entire Series F, G and L into common stock will take Genting Malaysia's effective shareholding in the company to about 76.3%.

"We see this acquisition as a negative development for Genting Malaysia as we project Empire Resorts to still be loss-making over the next five years and this acquisition increases our projected net debt/Ebitda for Genting Malaysia by end-FY23F from 2.49x to 2.63x," it said in a company note.

The research firm said Resort World Catskills' (RWC) gross gaming revenue and Ebitda have been improving so far this year while the expected opening of Resorts World Hudson Valley (RWHV) in December 2022 may also further improve Empire Resorts' financial performance.

However, it said the medium- to longer-term outlook is difficult to ascertain as Empire Resorts may be negatively affected by the issuance of up to three New York downstate full casino licences in 2023.

"This could lead to potential cannibalisation of RWC and RWHV, which are located only 1-2 hours away from New York City," said CGS-CIMB.

The research firm lowered Genting Malaysia's target price to RM3.25 after factoring in the Series F acquisition and FY22-24 forecast earnings by 0.3% to 0.4%.

"If Genting Malaysia buys out KHR’s remaining 23.7% effective stake over time, it may have to fork out a further US$244.3mil (RM1.07bn), based on this latest valuation of Empire Resorts' shares.

"This would further lower Genting Malaysia’s fair value to RM3.08 (including 15% holding company discount). Meanwhile, winning a New York downstate casino licence could enhance its fair value by 44-51 sen/share," it added.

It said potential re-rating catalysts could come in the form of FY22 earnings recovery and Resorts World New York City, a potential frontrunner, winning a New York downstate full casino licence.

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