GenM has proposed to dispose the entire equity interest in Coastbright Limited to Sonco UK limited for a total cash consideration of GBP34.6m. The disposal is expected to realise a gain of GBP23m. The proceeds from the disposal are intended to reduce Genting UK’s borrowings and for potential investment opportunities. We do not expect significant cost savings from this disposal. However we like the idea that GenM is streamlining its operations in UK. Maintain HOLD with unchanged SOP-derived TP of RM3.32.

NEWSBREAK

GenM announced that Genting UK (wholly owned subsidiary) has entered into a Share Purchase Agreement (SPA) with Sonco UK BidCo Limited (“Sanco”) to dispose the entire equity interest in Coastbright Limited (one of its UK clubs) located in London, UK for a total cash consideration of approximately GBP34.6m (~RM185m). The disposal is expected to realise a gain of GBP23m (~RM123m).

HLIB’s VIEW

Good start. We like the idea that GenM is streamlining its operations in UK and opine that significant cost savings impact will only flow in after more consolidation is done. For now, the proceeds from the disposal are intended to reduce Genting UK’s borrowings and for other potential investment opportunities moving forward.

London’s operations. With the disposal of Maxims Casino Club (a VIP casino) the club under Coastbrigh Limited, GenM will still be operating 3 VIP casino and 2 mass casino in London. With the disposal of one of its VIP club, we do not think that the group would lose its high rollers as the other VIP casino owned by GenM is only a 10 minutes’ drive away from each other.

Expect more consolidation moving forward. GenM has been looking to liquidate some of the non performing casinos in UK, especially in the cities with more than one club. To recall, the group has more than 40 operating casinos in the United Kingdom. We expect to see more consolidation to take place in cities like Birmingham, Liverpool, Scotland and London as there are more than one club in these cities.

Forecast. We keep our forecast unchanged, as we reckon that there will be no significant impact on earnings, as players will move to the other VIP casino owned by GenM. We also think that the cost savings from this disposal will be rather insignificant.

Maintain HOLD with unchanged SOP-derived target price of RM3.32. We remain cautious on the group due to the uncertainties arising from the fate of outdoor theme park along with the gaming tax hike impact, which potentially could undermine the growth expectation on the GITP expansion.

Source: Hong Leong Investment Bank Research - 1 Apr 2019