Yet more capital pumped into Empire

  • GENM will inject up to RM625m equity into ER to repay the latter’s debts.
  • This is negative as we expect ER to remain loss-making over the next 5 years while GENM’s share of its losses will rise from 58% to 66%.
  • Reiterate Add. SOP-based target price trimmed to RM3.40.

GENM injects another US$150m into associate Empire Resorts

Genting Malaysia (GENM) will subscribe for up to US$150m (RM625m) of associate Empire Resorts’s (ER) preference shares (Series L), bringing its total investment in ER to US$524m (RM2.2bn, 39 sen per GENM share) to date. This will be funded via proceeds from GENM’s US$1bn bond issuance in mid-Apr.

Share of ER’s losses to climb from 58% to 66%

The proceeds will be used to partly repay ER’s US$365m of short-term debt, which was earlier raised in Mar 21 for working capital and debt refinancing. While we understand the rationale for the exercise, we see it as a negative development for GENM as we project ER to still be loss-making over the next five years. While the interest cost savings will lead to narrower ER losses, we see minimal impact from this on GENM’s FY22-23F core EPS as it will be largely offset by higher share of ER losses (66% effective stake in ER vs. 58% previously) and interest cost on GENM’s own US$1bn bond.

Orange County & sports betting opportunities are potential boons

Our projection for ER’s losses over the next 5 years already takes into account earnings contribution from the Resorts World Hudson Valley (RWHV) video gaming machine facility in Orange County (to be completed by 2H22). Therefore, upside to ER’s earnings could come from better-than-expected gross gaming revenue at Resorts World Catskills and RWHV and if it is awarded (as part of the Kambi consortium) a mobile sports betting licence in New York State (outcome to be announced by end-2021).

FY21F net loss reduced on earlier-than-expected RWG reopening

Separately, we take the opportunity in this note to factor in the earlier-than-expected reopening of Resorts World Genting (RWG) on 30 Sep (with interstate travel allowed for fully vaccinated Malaysians from 11 Oct) vs. our previously assumed mid-Nov timeline. Hence, we reduce GENM’s FY21F core net loss by 9.4% to RM1.15bn. We make no major changes to our FY22-23F core EPS while FY21-23F DPS are also retained.

Reiterate Add, with a slightly lower SOP-based TP of RM3.40

We trim GENM’s TP after factoring in its US$150m ER equity injection, partly buffered by the positive impact from the earlier-than-expected reopening of RWG. However, we keep our Add rating as it still yields a total return of >10% (including FY22F yield of 4.6%). Key re-rating catalyst: FY22F earnings recovery. Its FY23F (full recovery year) adj. EV/EBITDA of 7.3x is 0.8 s.d. below the historical pre-Covid-19 mean, with decent FY21- 23F yields of 2.7-6.3% p.a. Downside risk: further Covid-19-led resort closures.