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KUALA LUMPUR (Sept 14): The word “negative" best describes analysts’ sentiment today after Genting Malaysia Bhd (GenM) announced on Friday (Sept 11) that its indirect wholly-owned subsidiary Genting ER II LLC is subscribing for an additional US$150 million (approximately RM625 million) of preferred stock in GenM’s 49%-owned US-based associate Empire Resorts Inc.

CGS-CIMB Securities Sdn Bhd analysts said today the Empire preferred stock subscription is a negative development for GenM because Empire, which runs the Resorts World Catskills (RWC) casino in New York, is forecasted to be loss-making over the next five years.

"While we understand the rationale of the exercise, it is nonetheless a negative development for GENM, as we forecast Empire to be loss-making over the next five years (in line with Empire’s projections in the amendment to its proxy statement, filed on Nov 8, 2019). Post-completion, GENM’s share of Empire’s losses will rise from 49% to 57%, lowering our FY21-22F core EPS (forecast for GenM) by 2.9-5.5%,” CGS-CIMB analysts Foong Choong Chen and Sherman Lam Hsien Jin wrote in a note.

Hong Leong Investment Bank Bhd (HLIB) analyst Andrew Lim Ken-Wern said HLIB is slightly negative on the near-term impact of the news on GenM due to the need for further financing required by Empire.

"Nonetheless, the amount to be injected would raise GenM’s net gearing to 0.37x (from 0.34x as of 2QFY20), which is still manageable. We are not entirely surprised by this news as Empire had previously disclosed the need for capital injection alongside (its) restructuring of debt, which has now been further impacted by Covid-19,” Lim said.


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