In light of GENM’s poor share-price performance over the past 12 months (-28% vs. the KLCI), we outline a scenario whereby GENM would list its US operations. However, we note there are a few steps that GENM needs to achieve before a listing, a likely value accretive exercise, is possible. While a listing might be a catalyst for GENM shares, it is unlikely to happen near term, as the Malaysia operations are still recovering from the impact of the gaming tax hike. Thus, we are maintaining our HOLD call and TP of RM3.40.

First Step: Turnaround of Resort World Catskill (RWC)

We estimate the total cost to Genting Malaysia (GENM) to acquire a stake from Kien Huat and form a JV to privatise Empire Resort for a 49% stake at USD167.5m. Investors would be eager for GENM’s management to turn around RWC as soon as possible. The total invested amount is likely to be higher as an equity injection of c.USD200-250m is still needed to refinance some of RWC’s debt. We believe that monetising RWC can help reduce some of the overhang on GENM, as the acquisition of the lossmaking casino is from a related party. We are projecting RWC to reach EBITDA break-even by 2024, supported by revenue CAGR of 7.3%.

Second Step: Miami and Las Vegas Could be in the Picture Too

Apart from the New York assets (RWNY and RWC), there is a possibility that GENM could include its Miami assets and RW Bimini with the listing. Certainly, there is more upside if GENM is able to obtain a gaming license in Miami. We believe the assets could be worth as much as USD1.5-1.9bn in 2025. Although Genting Berhad (GENT) is the owner of Resort World Las Vegas, we believe that there is a possibility that GENM could play a role in the casino once it is completed, most likely as an operator of the casino. We have not included its Mashpee investment, as there is still too many uncertainties due to the land rights issue.

Maintain HOLD With An Unchanged TP of RM3.40

We believe that a listing is feasible in the mid to long term, as monetization of these assets would not only help to reduce negative perception on the company with regards to its related-party transactions, but also reward shareholders with a special dividend payout. However, we are maintaining our HOLD call and SOTP-based 12-month TP of RM3.40, given the challenges faced by its Malaysian operations (75% of 2019E profits).

Source: Affin Hwang Research - 24 Sept 2019