Genting Malaysia's US$41mil buyout of Empire Resorts flagged as pricey, profit-dilutive
Hong Leong Investment Bank (HLIB) highlighted that the deal values GERL at an enterprise value-to-
earnings before interest, taxes, depreciation, and amortisation multiple of 72.7 times — far above the industry average of around 10 times for US-listed casino operators such as Las Vegas Sands, MGM Resorts, and Wynn Resorts.
"Given the stark premium relative to sector benchmarks, we consider the proposed transaction to be pricey," HLIB said in a note on Monday.
GERL owns Empire Resorts, which operates Resorts World Catskills, Resorts World Hudson Valley, and the mobile betting platform Resorts World Bet. The acquisition also includes the assumption of a US$39.7 million (RM171 million) intercompany loan from Empire Resorts to Kien Huat Realty III Ltd — the Lim family's private investment vehicle.
Subject to regulatory approvals, the acquisition is expected to be complete in the second quarter of FY2025.
Although the deal will give GenM full control of Empire Resorts, HLIB warned it could pressure the group's financials. Total borrowings may rise by RM1.3 billion, lifting the gearing ratio from 1.04 times to 1.15 times and adding up to RM70 million in annual interest costs by FY2026–2027.
Since acquiring a 49 per cent stake in Empire Resorts from Kien Huat Realty in 2019 for US$128 million, GenM has struggled to turn the business around.
While HLIB acknowledged potential synergies and operational efficiencies across the Resorts World brand, it expects losses from GERL to widen, with GenM's share of losses potentially increasing by RM23 million in FY2025 — translating to a possible 3.5 per cent earnings hit over the next three years.
Following its annual update, HLIB raised core earnings forecasts for FY2025 and FY2026 by 5 per cent and 1 per cent, respectively, and introduced an FY2027 core PATMI forecast of RM728.7 million (a 10 per cent year-on-year increase). However, it has not yet factored in the acquisition due to its pending completion.
With GenM's share price falling 26 per cent since its 4Q 2024 results, HLIB has upgraded the stock to Hold (from Sell) but trimmed its target price to RM1.80 (from RM1.99), reflecting the acquisition's risks.
Meanwhile, PublicInvest Research remained bearish, projecting that Empire Resorts will continue to incur losses due to market cannibalisation following the December 2022 launch of Resorts World Hudson Valley.
"Between FY2020 and FY2024, GenM has recognised total associated losses of RM160 million to RM280 million a year, which we attribute the bulk of this to Empire Resorts, the firm said in a note.
PublicInvest downgraded Genma to "Trading Sell" and slashed its target price to RM1.66 (from RM2.53), citing the deal's potential to delay earnings recovery and concerns over corporate governance, calling the related party transaction "unfavourable.
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