GenM has announced an equity injection amounting USD150m (RM625m) into Empire for working capital and financing purposes. We are slightly negative on the near-term impact of the news due to the need of further financing required by Empire. Nonetheless, the amount to be injected would raise GenM’s net gearing to 0.37x (from 0.34x as of 2QFY20) which is still manageable. On a more positive note, both Resorts World Catskills and Resorts World New York have recommenced operations on 9 Sep. Notably, RWC saw improvements since the new management had taken over whereby 2MFY20 revenue increased 31% while EBITDA stood at USD2m (from LBITDA -USD8m YoY). Maintain forecast and HOLD rating with an unchanged TP of RM2.43 based on a 10% holding discount.

NEWSBREAK

GenM announced an equity injection amounting USD150m (RM625m) into Empire (49% associate) via a subscription of preferred stock. The proceeds from the injection will be utilised by Empire for working capital and financing purposes.

HLIB’s VIEW

Slightly negative on the news. We are slightly negative on the near-term impact of the news due to the need of further financing required by Empire. Nonetheless, the amount to be injected would raise GenM’s net gearing to 0.37x (from 0.34x as of 2QFY20) which is still manageable. We are not entirely surprised by this news as Empire had previously disclosed the need for capital injection alongside and/or restructuring of debt which has now been further impacted by Covid-19.

Working capital pending bond offering. Back in July 2020, Empire launched a USD475m bond offering to refinance its existing short-term financing facilities, amongst others. Unfortunately, the Covid-19 outbreak had impacted the completion of the offering which has now postponed to 2021 to obtain a better reception from the debt market. As such, Empire now requires funding to fulfil its near-term obligations in the meantime.

On a more positive note, both Resorts World Catskills (RWC, operated by Empire) and Resorts World New York have recommenced operations on 9 Sep albeit with a 25% capacity limit. We gather that neighbouring states have shared improved receptions towards their respective reopening of casinos as well. Notably, RWC saw improvements (before the temporary closure in Mar due to the pandemic) since the new management had taken over whereby 2MFY20 revenue increased 31% while EBITDA stood at USD2m (from LBITDA -USD8m YoY). As such, RWC should have a rather bright longer-term prospect once the pandemic ends,

Forecast. Unchanged.

Maintain HOLD with an unchanged TP of RM2.43 based on a 10% holding discount. We expect share price to potentially remain subdued in the near-term given the potential impact of this news coupled with the overall impact of Covid-19 towards its overall operations. Our hold call and TP is already premised upon FY21 numbers (pegged to -1SD below the 10-year mean).

Source: Hong Leong Investment Bank Research - 14 Sept 2020