PublicInvest Research

Author: PublicInvest   |   Latest post: Wed, 2 Dec 2020, 9:34 AM


Genting Malaysia Berhad - Further Capital Injection into Empire Resorts

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Genting Malaysia Bhd (GENM) announced that it is injecting another USD150m (RM625m) cash into its 49%-owned Empire Resorts Inc (Empire). In March, GENM pumped in USD40m (RM175m) into Empire via a subscription of Series G preferred stock. While we believe that there is long-term growth potential for Empire, the continuous injection of capital into a loss-making unit within a short span of time may not be viewed positively by the market. Recall in August 2019, GENM acquired Empire from Genting Chairman’s family trust for USD129m (RM539m) cash, bringing its total cash investment to USD319m (RM1.3bn) thus far. We reiterate our Trading Sell call on GENM.

  • Series L preferred stock. GENM’s indirect wholly-owned subsidiary, Genting ER, entered into a subscription agreement to subscribe up to USD150m of Series L preferred stock of Empire. The stock consists of 1,500 preferred shares convertible at any time on or after 31 December 2030 and prior to the maturity date on 31 December 2038. The preferred shares are convertible into 15m common stock at a conversion price of USD10 per common stock. Note that in March 2020, GENM injected USD40m cash into Empire via a subscription of Series G preferred stock. Assuming the full conversion of all Empire’s preferred stock, GENM’s effective shareholding in common stock will increase to approximately 57%. The equity injection enables Empire to fund its working capital and fulfill short-term debt obligations within the next six months. GENM will fund the capital injection with internally generated funds and/or bank borrowings. As at 30 June 2020, GENM has a cash balance of c.RM6bn. For FY20F, we are forecasting a net debt of 37% for GENM.
  • Turnaround plan for Empire. Following the outbreak of Covid-19, Empire had temporarily closed its entire gaming operations, including Resorts World Catskills (RWC). On 9 September 2020, RWC recommenced operations in accordance with operating protocols set by the US authorities. The disruption to Empire’s operations due to the pandemic had resulted in significant adverse impact on its liquidity. Back track to pre-Covid-19, since the new management was appointed in 4Q2019, operating performance of RWC has improved with gaming revenue growing by 31% YoY. It posted an EBITDA of USD2m in the first 2 months of 2020, an increase of USD10m from the same period last year. For FY20-21F, we expect Empire to remain a loss-making unit of GENM.

Source: PublicInvest Research - 14 Sept 2020

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Chart Stock Name Last Change Volume 
GENM 2.50 -0.01 (0.40%) 13,004,100 

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