KUALA LUMPUR: Maybank Investment Bank (Maybank IB) has trimmed its earnings estimates for Genting Malaysia Bhd by RM40 million per annum and raised its target price to RM3.03 a share, following its US$100 million (RM456 milion) capital injection into Empire Resorts.
"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 the Empire is narrowing," it said in its note.
Genting Malaysia announced yesterday that it will subscribe for up to US$100 million of Series M Preferred Stock of Empire.
The proceeds will be used for working capital and to fully repay an existing bank facility of US$58 million.
With this latest equity injection, Genting Malaysia's effective shareholding in Empire will rise to 90 per cent from 76 per cent and bring its total investment in Empire to US$724.4 million.
The acquisition is not subject to Genting Malaysia's minority shareholders' approval.
Maybank IB also expanded its net debt forecast for Genting Malaysia by RM465 million to reflect the subscription.
"The above said, we narrow the discount to our discounted cash flow-based target price to 10 per cent from 15 per cent. "Our previous discount of 15 per cent implies that Genting Malaysia could extend another US$600 million-US$650 million on Empire; this is now too high after Genting Malaysia lifts its holdings to 90 per cent of Empire," it added.
The current implied valuation for Empire is US$750 million, compared with US$1 billion on Dec 5, 2022.
Maybank IB said the lower implied valuation is justified as Empire's Resorts World Hudson Valley (RWHV), which opened in Dec 2022, is loss generating. New York State Gaming Commission filings indicate that RWHV operations have not improved much.
It maintained its 'Buy' call on the stock.