GenM has made an offer to purchase the Equanimity superyacht yesterday, for a total cash consideration of USD126m. The yacht was purchased at a 51% discount to previous owner’s purchase price and close to the Government’s targeted minimum price of USD130m. We are mildly positive on the purchase as it will be able to complement its VIP casino segment (ferrying high rollers to its casino and renting for private functions). On a proforma basis, GenM’s net gearing would increase from 9% to 11% with the Equanimity purchase. Maintain HOLD with slightly higher SOP-derived TP of RM3.51.

NEWSBREAK

Yesterday, the Admiralty Court in Kuala Lumpur approved the offer made by GenM to Kuala Lumpur High Court of Malaya in regarding of the purchase of the Equanimity superyacht for a total consideration of USD126m (c.RM514.6m). The price represents the highest offer made since the Equanimity was first put up for sale in Oct 2018.

HLIB’s VIEW

On pricing. To recall, the Equanimity was a purchased by a Malaysian businessman back in 2014 for USD250m (~RM1bn). GenM is now buying it at a 51% discount to the previous purchased price. Also, we note that GenM’s purchase price is quite close to the reported minimum price of USD130m that the Government was targeting for.

Value-add to existing business. The group stated that the purchase of the luxury yacht will enable them to differentiate themselves from its competitors and provide the company with a unique and competitive edge for its VIP customer segment. We reckon that the yacht may be able to complement its casino business by providing additional services for their VIPs, such as ferrying high rollers to Malaysia and renting the yacht out for private functions. The Equanimity can accommodate up to 22 guests in 10 to 11 suites in addition to 30 crews.

Funded by cash. As of 31 Dec 2018, GenM is sitting on a large cash pile of c.RM8bn with net gearing of 9%. With the purchase of Equanimity, our estimated net gearing would increase to 11% on a proforma basis which is palatable.

Forecast. We do not impute any earnings contribution from the purchase of the Equanimity as this impact is expected to be minimal on the bigger scheme of things. We take this opportunity to introduce our FY21 earnings projection of RM1.2bn.

Maintain HOLD with higher SOP-derived target price of RM3.51 (previously RM3.32) as we roll our valuation forward to FY20. 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 - 11 Apr 2019