TA Research advised GenM’s shareholders to reject the offer tabled by Genting.
PETALING JAYA: Genting Bhd
’s RM6.7bil takeover offer for Genting Malaysia Bhd (GenM) is seen as unattractive and undervalued, with the RM2.35 a share offer price implying an enterprise value to earnings before interest, tax, depreciation and amortisation (EV/Ebitda) multiple below its historical average and regional peers, analysts say.
Genting’s offer price of RM2.35 per share to privatise GenM represents a 9.8% premium over the latter’s last traded price of RM2.14 when the offer was announced.
TA Research advised GenM’s shareholders to reject the offer tabled by Genting.
The research house said the chance of Genting revising the offer price higher is “slim as there is no incentive for GenM’s board of directors to seek any competing offer”.
TA Research said, as such, it thinks the current offer may not garner the necessary shareholder acceptance required to successfully privatise and delist GenM.
“From GenM’s standpoint, the offer price of RM2.35, which works out to an implied acquisition EV/Ebitda of 6.4 times next year’s earnings, is unattractive when benchmarked against the average of 8.4 times for regional peers,” the research house said in a report yesterday.
TA Research added that, from a strategic perspective, it is not in the best interest for Genting group to delist GenM as the access to the equity market is crucial for future fund-raising activity.
“This is particularly relevant to GenM’s plan to spend US$5.5bil to elevate Resorts World New York City (RWNYC), if it wins a casino licence there,” the research house said.
TA Research said, in the event of a successful takeover of a 100% stake in GenM, the acquisition would cost a total RM6.7bil.
Assuming the acquisition is fully funded via debt, Genting’s net gearing will rise to 0.46 times from estimated 0.34 times for next year. Its net profit for next year would increase by 75.8% to RM981.3mil from an estimated RM558.3mil.
The research house said it may be challenging for Genting to obtain 25.6% stake or 1.5 billion GenM shares, thus breaching the public shareholding spread requirement, in view of the unattractive offer price.
“We believe Genting would be able to up its stake to 50% by acquiring an additional 0.64% of GenM shares in the open market or receiving valid acceptance of 36.3 million GenM shares, which we think is relatively easy,” TA Research said.
TA Research reiterated its “buy” call for GenM and raised its target price to RM2.35 a share (from RM2.24 previously) to be on par with the takeover offer price.
The research house also maintained a “buy” call on Genting with a target price of RM3.44 a share.
CGS International Research (CGSI Research) said the privatisation is “unlikely to happen as investors are likely still sitting on paper losses”, as the offer price is lower than the RM2.50 to RM3 range the shares traded at from 2022 to 2024.
Other factors include the premium from the offer being less than 10% from GenM’s current share price. Also, investors might want to wait for the results of the company’s New York casino bid, which could provide significant long-term value.
“In the event the privatisation is successful, this should reduce the 30% holding company discount we have applied to our sum of parts valuation for Genting.
“To further illustrate Genting’s undervaluation, its 53% stake in Genting Singapore is currently valued at 26% below its current market value,” it added.
CGSI Research said the offer price also values GenM at 26 times its forecast price-to-earnings ratio (PE) for next year, which is higher than its historical pre-Covid-19 mean PE of 17.5 times.
“As such, the exercise would be earnings per share (EPS) dilutive for Genting, in our view, where our estimates point to a 6% decline in next year’s EPS assuming interest cost of RM330mil and loss of interest income of RM14mil,” the research house said.
That said, CGSI Research recommend investors to accept the offer as it is above its target price of RM1.88 for GenM and offers a good opportunity to exit as it thinks GenM would incur higher operating and capital expenditures for RWNYC, leading to lower earnings growth and dividend cuts.
CGSI Research reiterated its “add” call on Genting with a target price of RM3.57 a share.
The research house said its thesis for Genting is unchanged and it still sees the group as a “credible proxy for tourist arrivals into Malaysia and Singapore”.
CGSI Research retained its “reduce” call on GenM, as it thinks the market has not priced in the slowdown in its earnings growth and cut in dividends.
Phillip Capital Research said that while the offer provides an exit opportunity, it believes some investors may choose not to accept it, given their higher entry cost.
Meanwhile, Maybank Investment Bank Research (Maybank IB) said it did not look like a favourable deal for Genting at first look due to the high acquisition valuation and increased gearing, but there is large upside if the group takes over GenM’s catalysts.
“First, is the revaluation of the land in Miami it acquired in 2011. We value it at a cost of US$442mil but GenM attempted to sell it at market value of US$1.2bil in 2023.
“Second, is the potential sale of the Empire Resort’s non-gaming assets to the Sullivan County Resort Facilities Local Development Corp in New York. Third, is the potential win of a commercial casino licence in New York (after 10% discount),” the research house said.
Maybank IB has “buy” calls on Genting and GenM with target prices of RM3.94 and RM2.97, respectively.
Hong Leong Investment Bank Research (HLIB Research) said the transaction is expected to have a short-term negative impact on Genting’s income statement and balance sheet, primarily due to higher interest expenses and additional debt.
Nonetheless, it has maintained a neutral view on the offer price given the potential value accretion from winning the New York gaming licence.
“We advise existing shareholders of GenM to accept the offer, as the offer price is higher than our previous sum-of-parts derived target price of RM2.06 (or a 14.1% premium),” the research house said.
HLIB Research maintained “buy” calls on Genting and GenM with target prices of RM3.75 and RM2.35, respectively.
Genting and GenM’s share prices were up on the privatisation plan, closing at 5.24% and 8.41% higher, at RM3.01 and RM2.32, respectively.
