KUALA LUMPUR (April 27): Genting Malaysia Bhd’s proposed US$1.225 billion (RM5.433 billion) land divestment in Miami is set to reinforce the group’s financial strength in its bid for a downstate New York gaming licence.
Although the casino-and-resort operator has made it clear that cash proceeds arising from the divestment are meant for “general corporate and investment purposes”, analysts seem upbeat on the latest deal, driven mainly by the prospect from the downstate New York gaming licence.
JPMorgan analysts Jeffrey Ng and Sigrid Qiu said the exercise not only unlocks value of non-core assets, but also signifies that Genting Malaysia is preparing capital for its bid for a downstate New York gaming licence.
“Investors have never valued the Miami assets, as they were sleeping assets awaiting a gaming licence. Genting Malaysia originally bought the Miami Herald land for US$246 million in 2011. The initial hope was to win a gaming licence and build a casino, but that hope never came true,” they said in a research note on Thursday (April 27).
“We do not expect a special dividend, as the unlocked capital is already earmarked. Genting Malaysia is bidding for a New York table gaming licence, and the projected capital expenditure is US$1 billion,” they added.
Genting Malaysia announced the divestment on Thursday, proposing to sell the four parcels of land, collectively spanning 15.47 acres, by its wholly-owned unit to Smart Miami City LLC, which is ultimately-owned by South Florida-based real estate developer Terra Group founders David and Pedro Martin.
AmInvestment Bank Bhd has been appointed as the principal adviser for the deal, while JLL Valuation & Advisory Services LLC is the independent land valuer.
The disposals, which require shareholders’ approval, would enable Genting Malaysia to recognise an estimated gain of US$967 million.
Nomura analysts Tushar Mohata and Alpa Aggarwal said the sale represents ‘a large windfall’ for Genting Malaysia, and is deemed a very positive development for the group and its parent, Genting Bhd.
“This is a large windfall for the company, in our view, and will help improve the balance sheet for both Genting Malaysia and Genting after years of capex, Covid-19 related slowdown and generous dividends, which have resulted in its net debt-to-equity rising from 19% as of end-2019 to 71% as of end-2022.
“A rough calculation shows that Genting Malaysia’s net debt to equity will fall back sharply to 21% post the sale,” they said.
Genting Malaysia’s latest annual report showed that its cash and cash equivalents stood at RM3.04 billion as at end-2022, down from RM4.64 billion as at end-2021.
If Genting Malaysia fails to secure a New York gaming licence, the gain from the asset sale could then be used to pare down debt, said JPMorgan’s Ng and Qiu, potentially saving interest cost of US$23.8 million, boosting steady state profit after tax by 8%.
“The bidding process is likely to take longer than expected, with the release of the final result likely early next year.
“The region’s two existing race course-based casinos — Genting’s Resorts World New York City and MGM Resorts International’s Empire City Casino — are the leading contenders, as they both already have existing infrastructure to turn into full casinos,” they said.
The duo has an “overweight” rating for Genting Malaysia, with a target price (TP) of RM4.00, given the post-pandemic growth prospects of its flagship resort in Malaysia, potential New York gaming licence and sustainable dividends.
According to Bloomberg data, analysts have 15 “buy” ratings, four “hold”, and one “sell” for Genting Malaysia, with a consensus TP of RM3.28.
Genting Malaysia’s shares climbed as much as 3% to an intraday high of RM2.75 on Thursday, before paring gains to close at RM2.73, up six sen or 2.25%, valuing it at RM16.21 billion.
Genting, meanwhile, rose as much as 1.7% to an intraday high of RM4.74, before paring gains to close at RM4.70, up four sen or 0.9%, valuing the group at RM18.22 billion.
Talks on the divestment deal surfaced last month when media reported that the property attracted offers of over US$1 billion.
Back then, Maybank Investment Bank analyst Samuel Yin Shao Yang, who has a “buy” rating and a TP of RM2.97, estimated that Genting Malaysia could realise proceeds of over RM4.4 billion, and a gain on disposal of more than RM2.9 billion or 52 sen per share.
“More than a decade after entering the Miami property market, Genting Malaysia is likely to exit it, but with a whopping profit in tow. Yet, we do not expect Genting Malaysia to declare special dividends, but instead expect it to fortify its balance sheet, as it bids for a lucrative downstate casino licence in New York,” he wrote in a research note on March 27.
“Recall that we estimated that a downstate casino licence could add over 53 sen per share to our discounted cash flow-derived TP,” he added.
Yin said Genting Malaysia currently operates the Hilton Miami Downtown hotel on the aforesaid property, but it contributed only US$4.8 million or less than 1% to group earnings before interest, tax, depreciation and amortisation for the financial year ended Dec 31, 2022.
“Thus, the sale of the aforesaid property will not negatively impact our Genting Malaysia earnings estimates materially,” he said.
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