GENM is disposing of its Miami Herald land for USD1.225b, resulting in a hefty disposal gain of USD967m or c.RM4.3b. We view this positively as the land has been left idle since its acquisition, and the disposal proceeds could be used to fund other projects, particularly, if GENM is to secure the downstate New York full casino licence. We maintain our forecasts, TP of RM3.56 and OUTPERFORM call.

Disposing of Miami Herald land. GEMN is selling to Smart Miami City LLC four parcels of land in Miami (collectively known as Miami Herald land) for USD1.225b or c.RM5.433b cash. The deal is expected to be completed by 3QFY23.

To recap, GENM acquired the Miami Herald land (excluding parcel D) in May 2011 at USD246m and parcel D for USD13m in May 2017. Currently, parcels A, B and D are vacant lands while parcel C has a total rentable area of 20,139 sqft but is untenanted. The total market value for these four parcels of land is USD1.223m while its net book value is USD259m. Upon completion, GENM is expected to register a disposal gain of USD967m or c.RM4.289b, c.400% over its cost of investment.

We are positive on the disposal given the hefty disposal gain as the huge cash proceeds can be used for other investments, particularly if GENM is to secure the downstate New York full casino licence. Meanwhile, the Miami Herald land has been left idle since its acquisition, and since the state of Florida does not allow a casino to operate on non-native American land, there is no immediate value in holding onto the Miami Herald land further.

Forecasts. Pending the completion of the disposal, there is no change in our FY23F/FY24F earnings forecasts. Based on FY22A proforma effect, gearing is expected to decline to 0.76x from 0.96x postdisposal.

OUTPERFORM maintained. We believe key earnings driver RWG will benefit from the reopening of the economy as well as international borders, especially China, that should usher the return of foreign tourists. As such, we continue to like GENM as an earnings recovery play. Thus, OUTPERFORM is maintained with an unchanged SoPdriven TP of RM3.56. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 5).

Risks to our recommendation include: (i) non-renewal of licences, (ii) unfavourable prize payout ratios, (iii) weak consumer spending amidst high inflation, and, (iv) products perceived to be socially undesirable.

Source: Kenanga Research - 28 Apr 2023