PETALING JAYA: Genting Malaysia Bhd’s (GenM) move to inject up to RM625 million more equity into Empire Resorts for working capital and to fulfil its short-term debt obligations is deemed a “negative development” for the group, according to CGS CIMB Research, as it expects Empire Resorts to be loss-making over the next five years.
“While we understand the rationale of the exercise, it is nonetheless a negative development for GenM. Post-completion, GenM’s share of Empire Resorts’ losses will rise from 49% to 57%, lowering our FY21-22F core earnings per share by 2.9-5.5%. A consolation for GenM is the more favourable terms of the Series L preference shares, with the conversion price into common shares at a 50% discount to earlier issuances,” it said.
Last Friday, the group said it would subscribe for up to US$150 million of 49%-owned associate Empire Resorts’ preference shares (Series L), bringing GenM’s total investment in Empire Resorts to US$357.5 million (RM1.5 billion) to date.
The exercise brings GenM’s total investment in Empire Resorts to US$357.5 million (RM1.5 billion) to date. This will be funded via internal cash and/or bank borrowings.
The proceeds will be used as working capital for the resumption of Resorts World Catskills (RWC) operations after it reopened on Sept 9, and to fulfil its short-term debt obligations within the next six months. Empire Resorts also launched a US$475 million bond offering in July 2020, but this has yet to be completed.
“We also note ER’s prospects may improve if it is able to proceed with the development of an electronic games machine facility in Orange County, awarded a sports betting licence in the state of New York, and able to extract greater-than-expected synergies with Resorts World New York City (RWNYC),” it said.
CGS CIMB opined that the group’s share price would react negatively to the news, similar to when the group announced its initial investment of RM539 million in Empire Resorts in August 2019.
“However, the magnitude may be more in line with the investment amount (11 sen per GenM share) as it should come as a lesser surprise. While further equity injection(s) cannot be ruled out, additional fund-raising in the near-term may be via the debt market as Empire Resorts is working on its bond offering,” it said.
On Bursa Malaysia today, GenM shares closed 2.71% or 6 sen lower at RM2.15 with 24.4 million shares done.
The research house trimmed its target price on GenM by 3.6% to RM2.70, and is maintaining its add call on the stock.
