KUALA LUMPUR: Shares in Genting Malaysia Bhd (Genting Malaysia) fell as much as seven sen or 1.63% yesterday after it revealed plans to dispose of its entire 17.81% stake in Genting Hong Kong Ltd (Genting HK) for at least RM1.69 billion or 33 US cents (RM1.18) per share. The stock hit an intraday low of RM4.23 before closing down 0.7% to RM4.27 yesterday, with 3.39 million shares traded. Its market capitalisation stood at RM24.21 billion.
In a filing with Bursa Malaysia on Monday, Genting Malaysia (fundamental: 2.4; valuation: 0.8) said as the disposal of Genting HK may be implemented in tranches, there could potentially be multiple disposal prices, but they will be not be less than 33 US cents. It said that it has not identified any specific purchaser(s) for the disposal shares at this time.
“It is the intention of the board to complete the disposal of the shares in the most expeditious manner, after any sale contract or share sale agreement is entered into,” said Genting Malaysia.
Genting HK is involved in both land- and sea-based leisure, entertainment and hospitality businesses, comprising Star Cruises, the Norwegian Cruise Line and Resorts World Manila.
Genting Malaysia said the proceeds arising from the disposal may be used to partially fund the Genting Integrated Tourism Plan (GITP) as well as any future investments and/or used for working capital of the group. “Genting Malaysia is currently embarking on the GITP, a major 10-year master plan which was announced on Dec 17, 2013, to develop, expand, enhance and refurbish the hotels, theme park and infrastructure at Resorts World Genting.
“Furthermore, as part of its business strategies, Genting Malaysia will also from time to time identify and evaluate other investment opportunities, with a view to strengthen and grow its businesses,” said Genting Malaysia.
The proposed disposal is subject to approval from Genting Malaysia shareholders at an extraordinary general meeting to be convened. Once approved, Resorts World Ltd will have one year to dispose of the shares.
According to Genting Malaysia, its original cost of investment in Genting HK was US$604.1 million, representing an average purchase price of 42 US cents each (RM1.50). The investment was made between 1998 and 2006. As at Dec 31 last year, the carrying value of the disposal shares was US$501.5 million, representing the closing price per share of 35 US cents.
In a note to clients yesterday, AllianceDBS Research said the disposal will have no material changes to its valuation. It has a “hold” call and a target price (TP) of RM4.10 on Genting Malaysia. AllianceDBS Research also noted that Genting Malaysia would yield a one-off gain of about RM1.251 billion based on the minimum disposal price of 33 US cents per share.
HLIB Research said it was positively surprised by the proposed disposal as this would allow Genting Malaysia to entirely focus on its leisure and hospitality in the highlands. It added that the group’s investment in Genting Hong Kong was considered a non-core investment. “The group’s move to [monetise] the stake in Genting HK will be beneficial as the disposal would enhance Genting Malaysia’s balance sheet capacity to pursue other core investments,” it said.
HLIB Research believes that the group will utilise the proceeds for its GITP as well as further refurbish its existing hotels and casinos, or may even carry out the initiative in expanding its hospitality division.“We would not dismiss any possibility on the development plans for new hotel towers in the highlands to increase its room inventories,” it added.
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This article first appeared in The Edge Financial Daily, on May 13, 2015.