Introduction

Genting Bhd is listed on Bursa stock exchange with a market capitalization of RM18.0 billion. It owns the only casino in Malaysia at Genting Highlands through its 49.5%-owned Genting Malaysia and also Resorts World Sentosa in Singapore through its 52.7%-owned Genting Singapore. Genting also has exposure to palm oil plantation business through its 55.4%-owned Genting Plantations, oil & gas business and power sector. Genting also has 20.3% stakes in a pharmaceutical start-up company, TauRx which is about to roll out a promising new drug for the treatment of Alzheimer patients.

In the US, Genting opened its biggest casino, the US$4.3 billion Resorts World Las Vegas (RWLV)  in July 2021 while Genting Malaysia, through its 66.6%-owned Empire Resorts, opened Resort World Hudson Valley in New York just before the end of 2022. Empire Resorts also owns the massive Resorts World racetrack casino at Aqueduct Racetrack in Queens, New York as well as Resorts World Catskills casino north of New York city in Sullivan County. It is seeking a license to convert the existing Queens facility into a full-scale casino.

Casinos in Malaysia and Singapore

Resorts World Genting Highlands in Malaysia is coming out of the Covid-19 pandemic with visitation back to almost 80% of pre-pandemic levels. It reported an EBITDA of RM445 million in 3Q2022, not far off from its peak quarterly EBITDA of RM537 million in 3Q2019 and RM582 million in 4Q2018. Pre-tax profit in 3Q2022 was much lower at RM192 million compared to RM391 million in 3Q2019 and RM493 million in 4Q2018, mainly due to substantially higher interest expenses (about RM100 million higher per quarter) and higher depreciation charges (about RM34-68 million higher per quarter). The higher interest expenses now are due to Genting Malaysia’s higher equity injection into US Empire Resorts whose interest expenses have skyrocketed in recent months as a result of US Fed’s aggressive interest rate hikes in 2022. The higher depreciation charges arise from huge capital expenditure in completing the SkyWorld outdoor themed park in Genting Highlands.

On the other hand, Resorts World Sentosa, Singapore has seen stronger rebounds in its business and earnings with EBITDA coming in at RM812.5 million in 3Q2022, not far off from its peak EBITDA of around RM900 million per quarter in 2018-2019.

Failed Bids in Japan and Macau

Genting Singapore partnered with Sega Sammi, Japan in June-July 2021 to participate in the Yokohama Integrated Resorts (IR) RFP tender. Yokohama was one of the host cities to bid for the three new casino licenses tendered out by the Japan government in 2021. However, in late July 2021, the newly-elected Yokohama mayor opposed to the bid attempt by Yokohama to host a casino in the city. As a result, the Genting-Sega Sammi JV’s attempt to build the largest casino in Japan fell through without submitting a bid.

In July 2022, it was reported that Genting Malaysia through one of its subsidiaries was invited to participate in the tender by the Macau government to renew 6 casino licenses for a 10 year period. Genting Malaysia was shortlisted along with the 6 incumbents but failed to obtain one of the licenses due to unknown reasons. Macau was the biggest gambling market, even bigger than Las Vegas, before the Covid-19 pandemic with gross gaming revenue of US$30-36 billion a year, but dropping to just US$9 billion in 2021 due to zero covid policy of China. The 6 incumbents in Macau have been reporting losses in past 2 years but expect to turn around in 2023 after the relaxation of covid rules. However, each of them will need to commit huge re-investment capital expenditure in next few years in return of a 10-year casino license. On hindsight, Genting’s failed bid in Macau may turn out to be a blessing in disguise, as otherwise it would need to fork out huge capex and add more debts to its already high debt mountain.

Resorts World Las Vegas

Resorts World Las Vegas (RWLV) opened its door in July 2021 and reported a decent EBITDA of US$ 27 million in 3Q2021. Total EBITDA for first 9 months of 2022 amounted to US$70 million, and 4Q2022 is expected to be the best quarter of the year with EBITDA of over US$30 million, making the full year 2022 EBITDA in excess of US$100 million.

With easing of Covid-19 rules for China outbound travelers from 8^th Jan 2023, tourist visitation to Las Vegas is expected to rebound strongly in 2023. RWLV is expected to register EBITDA of over US$160 million in 2023 and around US$200 million in 2024. Even so, I think RWLS still has plenty of room for earnings growth after the covid-19 pandemic is completely over in the US and China. Let’s take a look at the historical gaming revenue in Nevada:

The state of Nevada has about 267 casinos that grossed US$1 million or more in gaming revenue, with 61 casinos owned by public companies accounted for 71% of the total gaming revenue generated statewide during the fiscal year of 1 July 2019 – 30 June 2020. The state’s casinos made US$2.89 billion during that fiscal period, and the Las Vegas Strip accounted for nearly all the profits, pulling in US$2.74 billion. The Las Vegas Strip hence reported an average profit margin of US$2.74b/US$(7.9+12.0)/2*71% = 38.8%.

RWLV reported revenue of US$573 million and EBITDA of US$70 million for 9M2022, or an EBITDA margin of just 12.2%. As revenue increases, there is plenty of room for RWLV to improve on its EBITDA margin:

^revenue assumed to grow at 3.0% p.a. from 2025 to 2043

*operating costs assumed to grow at 2.0% p.a. from 2025 to 2043

As can be seen from the table above, RWLV would be able to expand its EBITDA margin closer to peers in Las Vegas Strip over the next 20 years when it achieves the full potential of a matured full-fledged casino. By then, its EBITDA would exceed US$600 million a year.

As RWLV is new so capex requirements in next 10-20 years will be minimal, hence I assume annual capex at 0.75% of revenue. Nevada state charges a gaming tax of 6.75% on gaming revenue, plus the American corporate tax rate of 21%, after-tax operating cashflows will be about 72% of EBITDA.

The NPV (at 4.0%) of after-tax free cashflows over the next 20 years to 2043 would be US$3.37 billion, and would be US$6.75 billion if including a terminal value (at 1% terminal growth rate) at 2043. The NPV of free cashflows at 5.0% would be US$5.71 billion at 1% terminal growth rate.

As a result, RWLV should have an Enterprise Value (EV) of at least US$5.71 billion to as high as US$6.75 billion. Deducting debts of about US$4.0 billion at RWLV, the equity value to Genting would be US$1.71 billion (RM7.5 billion) to US$2.75 billion (RM12.0 billion).

Resorts World New York City

Resorts World New York City located at Queens is a Video Lottery Terminal (VLT) facility with over 6,500 slot machines. It is operated by Empire Resorts and complemented by the Hyatt Regency JFK Airport. Empire Resorts also owns the upstate commercial casino, Resorts World Catskill. Empire Resorts in late Dec 2022 opened Resorts World Hudson Valley (RWHV), another upstate casino offering 1,200 slot machines.

Empire Resorts was owned 66.6% by Genting Malaysia (Genm) and 33.4% by Kien Huat Realty, a company linked to Tan Sri Lim Kok Thay. On 5 December 2022, Genm entered into a Share Purchase Agreement with Kien Huat Realty to purchase 1,510 Series F Convertible Preferred Stock of Empire Resorts for US$100 million. When all these convertible preferred stocks are converted into ordinary shares, the effective shareholding of Genm in Empire Resorts will increase from 66.6% to 76.3%.

Since buying 49% of Empire Resorts from Kien Huat in Nov 2019 for US$159.7 million, Genm injected equity of US$173 million in FY2020 and US$187 million in FY2021. The latest share subscription of Genm effectively valued Empire Resorts at US$1.0 billion.

Empire Resorts have turned around on EBITDA level since 2021 with revenue of US$231 million and EBITDA of US$36 million. It is expected to grow its revenue by almost 20% in 2022 and maintain positive EBITDA. Pretax losses are expected to have narrowed to about US$60 million in 2022.

New York Full Downtown Casino Licenses

On 3 Jan 2023, New York gaming officials released the request for applications (RFA) for the three remaining casino licenses available in the state. Nearly a decade ago, the state’s voters approved a constitutional amendment to allow commercially licensed casino gaming up to 7 facilities. Four of those facilities currently operate in upstate New York, and were allowed to build up their operations before any New York City facility opened.

The 3 new licenses are expected to go to developments proposed for the downstate region, which includes New York City and its suburbs on Long Island and north of the metropolis. The Gaming Facility Location Board has provided no official deadline for submissions. All applicants must be willing to invest at least US$500 million in any project they propose. The license fee for the new gaming facilities will also be US$500 million.

“The quicker the three licenses are approved, the quicker we can begin to realize the major benefits to the state, such as thousands of construction and post-construction jobs, billions in revenue from the licenses, an increase in problem gambling monies and programs, as well as billions more in educational funding when the winning casinos go live,” Senate Racing, Gaming, and Wagering Committee Chairman Joseph Addabbo said in a statement on Wednesday 4 Jan 2023.

The solicitation for casinos in or around the nation’s largest city is expected to generate several high-profile bids. Some have already announced their intention to bid, including a  proposed US$3 billion casino resort for Coney Island which the promoters said would create “an economic boom” for the Brooklyn neighbourhood. Las Vegas Sands has been tied to reports about a Long Island project.

While there are three licenses available, some anticipate only one license being up for grabs. The downstate area already has two large-scale video lottery terminal facilities, the Empire City Casino in Yonkers owned by MGM Resorts International, and Resorts World New York City owned by Genm/Empire Resorts in Queens. Both of those entities have long expressed their desire to switch out VLT machines for Las Vegas-style slots and add live dealer table games.

One of the advantages for Empire City and Resorts World New York City has been their ability to quickly convert their existing facilities to a full-fledged casino, which would allow the state to start receiving new revenue in the near term instead of waiting several years for a new casino to be built.

“Although the Board was clear this process is for three new licenses, we still agree with the consensus view that MGM and RWNYC are front-runners for two of the three licenses, given their long-standing history in the state. We’ll look to assess other candidates as RFA materials are made available in the coming months,” John DeCree, a senior analyst with CBRE Equity Research, said in a note to investors on 4 Jan 2023.

Potential Size of Gold Pot in NYC

The solicitation for downstate licenses in NYC is expected to create the largest opportunity for land-based gaming expansion in recent years. In April 2022, CBRE estimated the market for casinos in the area to be US$4.8 billion a year. That is due to the region being home to nearly 20 million residents who make US$80k a year on average.

The gross gaming revenue in New York state (from native American casinos, VLT facilities and commercial casinos) totaled US$3.75 billion in 2019. Furthermore, the gross gaming revenue in states surrounding New York amounted to US$7.4 billion in 2020 (Pennsylvania $2.7b, New Jersey $2.9b, Connecticut $0.9b, Massachusetts $0.6b, Rhode Island $0.3b). It is reasonable to assume that about 20% of the gross gaming revenue from surrounding states will flow to the new downstate casinos in NYC, or about US$1.5 billion. Hence, the potential gaming revenue for NY state will be increased by such increment to US$3.75b + US$1.5b = US$5.25b per annum. Divided by the 3 new licenses, each casino may rack in gaming revenue of US$1.6 – 1.7 billion every year.

Under my projection, each of these 3 new casinos in NYC will generate gaming revenue of US$1.5 billion in 2024 once fully operational, increasing at 2% p.a. thereafter. I assume operating costs to be at 15% of annual gaming revenue (check: Genting Sentosa Singapore at c.10%, Genting Highlands Malaysia at c.20%), and staff costs to be also about 15% of gaming revenue (4 dealers + 1 supervisor per gaming table at average wages of US$72k p.a.). NYC has a higher gaming tax of 20% on gaming revenue (compared to 6.75% in Nevada), and a higher total combined corporate tax of 34% (US federal tax 21% + New York state tax 5% + New York City tax 7% + Metropolitan Transportation Authority tax 1%). Financial projections for Empire Resorts / Resorts World NYC for year 2024 and 2043 are summarized as follow:       

* depreciation charges assumed to be US$50m p.a. from existing facilities + US$1.0billion new capex/20 years

^capex assumed to be at 2% gaming revenue as existing facilities are relatively older than that of RWLV

NPV of the free cashflows with a terminal growth rate of 1% at 2043 will amount to US$11.88 billion at 4% discount rate and US$10.33 billion at 5% discount rate (compared to current US Fed rates of 4.0% and expected Fed terminal rate of 5.1% in 2023).

A downstate casino in NYC is worth much higher than a casino in Las Vegas is because there will be only 3 full-scale downstate casinos in NYC compared to 267 casinos in Nevada, and NYC alone has a large population of 20 million with higher income and over 50 million visitors a year (compared to Nevada which relies on mainly tourists, 32 million in 2021).

Genting Properties in Maimi

In early Dec 2022, it was reported that Genting Malaysia was offering a prime 16-acre waterfront site on Biscayne Bay in Maimi for over US$1.0 billion after abandoning plans to develop a casino there. Genting group bought it in 2011 for US$236 million. Genting’s original plans for the site include a hotel-casino, and several retail and residential buildings. Genting attempted several times to obtain a casino license but could not get state officials to grant it an exemption from a Florida law that gives Native American tribes the exclusive right to operate casinos in the Sunshine State.

The Downtown Miami waterfront parcel was once home to the Maimi Herald newspaper. The site is one of the largest undeveloped parcels on the waterfront, offering 800 feet of frontage on Biscayne Bay. According to Avison Young, which is the marketing the property, the site can accommodate up to 20 million sf of mixed-use development and comes with a series of entitlements from the city.

According to WSJ on 20 Dec 2022, Related Group and Related Companies are both interested in Genting’s Resorts World Miami. Related Group was founded by Jorge Perez, while Related Companies was founded by Miami Dolphins owner Stephen Ross. The two were originally development partners in Maimi for over 40 years, but recently agreed to split.

“We are always interested in prime, waterfront land,” Related Group president Jon Paul Perez told the paper.

Potential US Listing of Genting Facilities

Genting group will strike gold as it seeks a US listing of its gaming facilities there. As interest rates keep rising in the US, Resorts World Las Vegas is suffering from much higher interest expenses going forward from the high debts of about US$4.0 billion it carried on for the funding of the construction costs of the gaming facilities in 2021. It is only natural for Genting to list up the gaming facility and raise fund to pare down the borrowings.

Genting Group Chairman and CEO Lim Kok Thay said, after the launch of RWLV in July 2021, the company would look at listing in the US sooner rather than later amid rising confidence in the US market and the launch of US$4.3 billion RWLV.

“As the numbers pick up and when investor confidence returns, that is something we will seriously look at in terms of consolidating out US investment and then seeking a listing,” he said. “Now that we are open, we are eagerly waiting for the first 30 days’ results which will bring us to the end of the quarter and that will give us tremendous clarity on the timing of an IPO.”

While the initial numbers coming out of RWLV were not as encouraging in 2021-1H2022 while the gaming and tourism market in Las Vegas still had not fully recovered from covid-19 pandemic, gaming revenue rebounded strongly from 2H2022 with monthly gaming revenue exceeding US$1.0 billion for several months and total gaming revenue for 11 months of 2022 already exceeded the whole year number of 2021.

Furthermore, New York gaming officials have just launched the RFA process to solicit interests for three new casino licenses in NYC and Genm’s Resorts World NYC stands a good chance (along with MGM’s Empire City) of securing one. The RFA process may take several  months before the winners will be announced but likely before the end of 2023.

I reckon that Genting may not need to wait till the winner announcement of NYC casino licenses but should seek a listing in 1H2023. This will pave the way for immediate injection of RWLV into the new listing at an enterprise value of about US$6.0 billion (US$5.71b – US$6.75b as established above) and raise billions of dollars to Genting to help pare down its borrowings and save interest expenses.

Genm and Kien Huat Realty may consider inject some 30% of their interests in Empire Resorts (that owns RWNYC, RW Catskills and RWHV) at an enterprise value of say US$3.3 billion (at 30% of potential EV when it wins a downstate casino license) to raise new fund of US$1.0 billion for funding the transition to a full-scale casino once it wins a downstate casino license. Genm and Kien Huat Realty may then inject the remaining 70% of their stakes in Empire Resorts into the new listing after it wins a downstate casino license at an enterprise value of US$10.33 billion to US$11.88 billion for a windfall cash proceed and a substantial stake in the new listing. This way will effectively give some upside to the new listing entity as it will acquire the first 30% stake at 70% discount to the value of a full-scale NYC casino.

For the Maimi land, I reckon that Genting should just dispose it off directly to potential suitors if it can find a buyer in coming months, otherwise it may inject it into the new listing at a value of say US$1.0 billion. Then the new listing entity may sit on the land for it to appreciate further or dispose it off at over US$1.0 billion for a gain.

In summary, the new US listing may have a total market capitalization of almost US$18 billion (or a whopping RM78.8 billion!):

            Resorts World Las Vegas        US$6.0 billion

            Empire Resorts                       US$11.0 billion

            Maimi land                              US$1.0 billion

            Total                                       US$18.0 billion

Genting Bhd will get cash proceeds of some US$3.0 billion (or RM13 billion) from injecting RWLS into the new listing and US$3.0 billion worth of shares in the new listing.

Genm and Kien Huat Realty will get cash proceeds of some US$5.0 billion (US$1.0bn from the first 30% stake injection, US$3.0 billion from injecting the remaining 70% stakes, and US$1.0 billion from injecting the Maimi land), and US$4.7 billion worth of shares in the new listing.

Based on scenario above (call it Scenario A), Genting group will collectively own a total of 7.7/15.7 = 49% stakes in the new listing worth US$7.7 billion and receive total cash proceeds of US$8.0 billion. The exact proportion of cash proceeds to be received by Genting Bhd, Genm and Kien Huat may end up differently, depending on which entity will need more cash.

In another extreme scenario (call it Scenario B), Genting Bhd may get all cash of US$6.0 billion from injection of RWLV into the new listing and not hold any stake in the new listing, while Genm & Kien Huat may get just US$2 billion cash proceeds (US$1.0bn from first 30% stake injection and US$1.0 billion from injecting the Maimi land) and hold US$7.7 billion worth of shares in the new listing.

The important thing is that Genting group will be able to unlock the massive value in its US facilities and may raise total cash proceeds of US$8.0 billion or RM35.0 billion. That would  help to pare down almost all of the debts at Genting Bhd and turn it into a net cash company with cash holdings of almost RM17 billion or RM4.38 per share. At current share price of RM4.58, Genting Bhd would be entirely backed by cash holdings, which means investors are getting all its other holdings (Genting US market cap RM78.8b, Genm, Genting Singapore, Genting Plantation, stakes in the promising TauRx pharmaceutical company, oil & gas assets etc) for free!

To estimate the fair valuation of Genm and Genting, I shall use Scenario B above for simplicity. Based on its enlarged 76.3% stakes in Empire Resorts, Genm would receive cash proceeds of US$1.0b x 76.3% (from the first 30% stake injection into new listing) plus US$1.0b from injection of Maimi land, a total of US$1.763 billion or RM7.7 billion, which would cut its net debts from RM9.0b to just RM1.3b. After the US listing, Genm shall own an effective stake of 76.3% x 49% = 37.4% in the new listing (call it Genting US). Genm would then be valued at:

*based on valuation by Maybank research

Under Scenario B, Genting Bhd would receive cash proceeds of US$6.0 billion or RM26.3 billion but no direct stake in Genting US. Genting’s 20.3%-owned TauRx is reported to be seeking a valuation of US$15 billion once it gets approval from US or UK authority approval to market its Alzheimer treatment drug. Genting Bhd would then be worth:

*based on valuation by Maybank research

There may be further upside to Genting valuation if TauRx can commercially market its Alzheimer treatment drug at over US$10k per year per patient as other drugs from competitors like Biogen & Eisai have failed. Also, Genting’s effective stake in TauRx may be higher than 20.3% if some other shareholders did not participate in TauRx right issues in Nov 2021.

There is a remote possibility for Genting to gain access to the lucrative Macau market in next few years should any of the 6 incumbents fail to spend the capex as committed when its license was renewed in Dec 2022. There would be another jackpot to be striken if Genting manages to win a license in Thailand when up to 5 new casino licenses will be up for grabs across the nation in next 2-3 years.

For now, Genting should be worth up to RM22.50 per share, or 4.8x its current share price.