Thursday, July 07, 2022

Genting U.S. expansion raises eyebrows

Genting Malaysia is pushing ahead with its overseas expansion plans, though analysts have expressed concern its recent acquisition of Empire Resorts in the U.S. will weigh on long-term earnings. 

In August, Malaysia’s casino monopoly announced plans to privatize the currently-loss-making Empire Resorts, the company which owns and operates Resorts World Catskills in New York.

RWC began operations on 8 Feb, 2018 and features a 322 all-suite hotel, 1,600 slot machines and over 150 gaming tables.

The acquisition announcement triggered a 12 percent plunge in the company’s share price due to concern about the impact of taking on Empire, which had reportedly been close to filing for Chapter 11 bankruptcy protection. 

The purchase will be made by Genting’s wholly-owned subsidiary Genting (USA), which will acquire 13.2 million shares in Empire from its single largest shareholder, Kien Huat Realty III for $128.6 million. The 13.2 million shares represent around 46 percent of Empire’s common stock. Genting said the move will better position the Resorts World brand in the northeastern US gaming market through more effective cross-marketing with Resorts World Casino New York City.

However, doubts about the acquisition overshadowed what were otherwise positive earnings from Genting Malaysia in Q2. 

The casino operator posted a net profit of RM416.5 million ($99.4 million) in the second quarter of 2019, up 5.3 percent year-on-year. Quarterly revenue also grew slightly to RM2.7 billion.

Genting Malaysia’s domestic operations achieved a 10 percent growth in revenue, however, Resorts World Genting reported an overall decline in the volume of business in the gaming segment, due to lower incentives offered to customers as part of cost-cutting initiatives. 

Analysts from Maybank said that the company has been successful in managing the impact of the 10 percentage point casino duty rate hike, and its corporate tax rate bill. 

“That said, its recent acquisition of a 49 percent shareholding in Empire Resorts will weigh on long term earnings,” said the analysts. “We may revisit our call if Empire Resorts is successfully turn around financially,” the analysts added. 

TA Securities said it has a neutral on the acquisition, but noted that Genting may be overpaying for the transaction given Empire’s increasing losses over the past four years. 

“However, the investment amount of $128.6 million is relatively small for the company to take part in the $1.5 billion development of Resorts World Catskills,” it said.

As well as Resorts World Catskills, the company owns and operators a racino in New York City and Resorts World Bimini in the Bahamas. Its parent company, Genting Bhd,  is developing the $4 billion Resorts World Las Vegas. 

The New York property attracted 4 million visitors last year and has more than 6,000 video gaming terminals. It is being expanded to include a new 400-room hotel, more gaming space and dining, entertainment and retail options. The first phase of the expansion is expected to open by the end of this year. 

Bimini and New York made up about 15 percent of revenue at the group in Q2, compared with 69 percent from Malaysia.

Genting Malaysia was also among three companies vying to develop an integrated resort at the former Hellinikon International Airport, near Athens in Greece. 

The other two companies, perceived as current frontrunners, were Hard Rock and Mohegan Sun. The Hellenic Gaming Commission has mandated that the planned integrated resort at the former airport must include convention facilities and at least 500 slot machines, along with a minimum of 100 table games.

Although Resorts World Las Vegas is being developed by Genting Bhd, analysts at Affin Hwang Capital envisage a scenario under which Genting Malaysia becomes the operator of the property once it is completed. 

The analysts at Affin Hwang were outlining scenarios which may help Genting Malaysia’s share price to recover its losses following the Empire acquisition and the impact of the gaming tax hike.

One of the possible options is a listing of its US assets, including Resorts World Catskills, Resorts World New York, and Resorts World Bimini, they said. 

The analysts said they believe the assets could be worth as much as US$1.5 to $1.9 billion in 2025. 

However, for this to go ahead, analysts said that Genting Malaysia would need to first turn the business around, which has been losing money.

“Investors would be eager for Genting Malaysia’s management to turn around RWC as soon as possible. The total invested amount is likely to be higher as an equity injection of about US$200 million to US$250 million is still needed to refinance some of RWC’s debt.”

Asia Gaming Brief is a news and intelligence service providing up to date market information for worldwide executives on relevant gaming issues in Asia.

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