KUALA LUMPUR (Jan 11): Investors appeared to be perturbed by Genting Malaysia Bhd, after the casino and hospitality group announced an additional equity injection of US$100 million (RM464.15 million) into its 49%-owned beleaguered US associate Empire Resorts Inc.
Shares of Genting Malaysia came under pressure on Thursday morning, falling 3.5% or 10 sen to RM2.75, giving it a market capitalisation of RM16.33 billion as at 11.55am.
Genting Bhd, which owns a 49% stake in Genting Malaysia, also declined by 10 sen or 2% to RM4.77, valuing the conglomerate at RM18.49 billion.
However, Genting Plantations Bhd, in which Genting controls 55.4% interest, climbed 31 sen or 5.16% to RM6.32, being the second largest gainer across Bursa Malaysia, having a market capitalisation of RM5.67 billion.
The stock was buoyed by the general uptrend in plantation counters, which likely followed news that crude palm oil (CPO) stockpiles have declined to a three-month low of 2.29 million tonnes in December.
The Malaysian Palm Oil Council has projected that CPO prices will average RM4,000 per tonne in 2024, due to Indonesia's rising domestic demand for the commodity, driven by usage for biodiesel and food, coupled with its flat production growth.
Analysts were generally negative on the additional equity injection into Empire, which is widely viewed as financial aid rather than investment.
Kenanga Research went on to downgrade its rating to “market perform” from “outperform”, with a lower target price (TP) of RM2.90 from RM3.07.
“After this proposal, Genting Malaysia would have invested US$724 million in Empire and would be able to recognise 89.6% of Empire’s losses or profits, up from 76.3% previously,” said Kenanga.
“We keep our financial year ended Dec 31, 2023 (FY2023) to FY2024 earnings intact as Genting Malaysia is essentially using its balance sheet to bolster an investment with 89.6% economic interest.
“More importantly, we expect Empire’s operations to gradually normalise with profits to show over the next two to three years,” it said.
Genting Malaysia on Wednesday disclosed that the latest capital injection will involve Genting Malaysia subscribing to 1,000 of Empire’s Series M preferred stocks. Empire plans to use the capital injection for working capital, and to pay off a US$58 million bank facility.
“All in all, we are not positive of Genting Malaysia’s continuous injection of capital into Empire and believe that it will remain a loss-making unit in the near term,” said PublicInvest Research in a note on Thursday (Jan 11).
The research firm maintained an “outperform” rating and TP of RM3 on Genting Malaysia.
“To be sure, we do not look kindly on the most recent related party transaction (RPT) involving Empire. That said, it does appear to us that room for more RPTs involving Empire is narrowing,” said Maybank Investment Bank in a note on Thursday.
While the investment bank lowers its estimate for potential further investment into Empire, Maybank kept its “buy” rating with higher TP of RM3.03 from RM2.93.
“Investors should buy Genting Malaysia for its potential to win a downstate commercial casino licence [in the US] that may add 56 sen to our discounted cash flow-derived target price,” said Maybank.