MALAYSIA

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 turned 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 operates 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.”

Naga’s Chen to privatise Malaysia resort company

Karambunai Corp Bhd’s largest shareholder, Tan Sri Dr. Chen Lip Keong, is planning to privatize the company in a deal worth an estimated RM184.7 million (US$44.2 million), local media reports.

According to the company’s website, Karambunai is an integrated company involved in the tourism industry in Sabah, Malaysian Borneo and other parts of Malaysia.

The company most notably owns 1,500 acres of prime tourism property in Kota Kinabalu, Sabah. The company’s chief executive officer is the son of Dr. Chen, Mr. Chen Yiy Fon.

Karambunai told Bursa Malaysia that it has received an unconditional voluntary takeover offer from UOB Kay Hian Securities (M) Sdn Bhd on behalf of Mr. Chen to acquire the remaining 1.54 billion shares or 26.59 percent interest in the company.

Dr. Chen, who is also the CEO and owner of Hong Kong-listed NagaCorp is already the largest shareholder of the company.

Malaysia clampdown crimps Playtech outlook

U.K.-listed Playtech Holdings has cut its forecast for revenue from Asia this year due to a clampdown in Malaysia and increasing competition in China.

The group now expects revenue of EUR115 million ($127.4 million) from Asia, compared with its earlier forecast of EUR150 million.

“Our business in Asia continues to be materially lower than previously following a significant increase in competition in China in 2018 from new market entrants, while Malaysia also remains significantly lower than its previous highs.”

The company said the increased competition in China has led to a highly competitive pricing environment. T

o offset the impact, it says it is focused on underlining the premium position of its offering in the region.