- Genting Malaysia Bhd (GenM) has proposed to dispose its entire equity interest of 17.8%, representing 1.4bil shares, in Genting Hong Kong Ltd (GenHK).

- GenM will either dispose the shares via open market, off-market transaction or a combination of the latter two. The shares may be sold to third or related parties. Currently, GenM has not identified any buyer for the shares in GenHK.

- The minimum selling price of the shares will not be less than US$0.33. GenHK closed at US$0.37/share yesterday. The selling price will not be more than a 20% discount to the VWAP of the shares for five market days before the date of the sale.

- GenM’s investment in GenHK was recognised at US$0.08/share in its books. This was written down from the original investment cost of US$0.42/share in 2009. Hence assuming a disposal price of US$0.33/share, GenM would be recognising a one-off gain on disposal of RM1.25bil.

- GenM does not recognise any earnings contribution from GenHK. GenM only enjoys dividend payments from GenHK. GenM received dividends of RM47mil from GenHK in FY14. There were no dividend payments in FY12 and FY13.

- We view the disposal of GenHK positively as it would increase GenM’s cash reserves. Upon the completion of the disposal of GenHK, GenM’s gross cash will rise from RM2.8bil as at end-FY14 to RM4.4bil (proforma assuming a disposal price of US$0.33/share).

- However, we believe that there would not be any payment of special dividends from GenM. In the Bursa Announcement, GenM said that the disposal proceeds may be used to partially fund the RM5bil Genting Integrated Tourism Plan at Resorts World Genting and future investments. GenM’s 20th Century Fox World Theme Park is expected to cost almost RM1bil. It is envisaged to open in late-FY16F or early-FY17F.

- It appears that GenM may be on a fund-raising exercise. In February 2015, it was reported that GenM may be selling Wisma Genting for RM500mil. If GenM were to sell GenHK, we reckon that the group would have enough internal cash to finance GITP without relying heavily on borrowings. As at end-FY14, GenM’s borrowings stood at RM1.6bil. Maintain HOLD on GenM.

Source: AmeSecurities Research - 12 May 2015