Genting Malaysia Bhd
(Oct 7, RM3.05)
Maintain hold with a higher target price of RM3.16: Empire Resorts Inc’s recent filing of a proxy statement on its merger exercise revealed positive forward-looking financial projections and justification for Genting Malaysia Bhd’s (GenM) acquisition price valuation. Recall GenM’s indirect wholly-owned subsidiary Genting (USA) Ltd and Kien Huat Realty III Ltd had formed the joint venture (JV) Hercules Topco LLC to acquire the remaining shares they do not hold in Empire at US$9.74 each. The JV will delist and privatise Empire from the US stock market.

 
Based on the financial projections model prepared by Empire’s management, Empire could narrow its earnings before interest, taxes, depreciation and amortisation (Ebitda) losses from US$89 million for financial year 2018 (FY18) to US$11.9 million for FY19 and achieve a break-even Ebitda for FY20. Empire had also provided another set of financial projections inclusive of online sports gambling beginning in 2021, imputing an incremental Ebitda of US$40 million for FY24.

GenM has engaged Union Gaming, a boutique investment bank and advisory firm focused on the global gaming industry, to provide a valuation range on the considerations and acquisition price for this merger exercise. Based on several analyses from Union Gaming, the estimated valuation of Empire shares are US$5.44 to US$15.95 per share. Therefore, the acquisition price of US$9.74, a premium of 18 US cents per share to the closing price on the last trading day before the date where Kien Huat and GenM submitted the proposal letter, is deemed fair. — UOB Kay Hian Research, Oct 7