KUALA LUMPUR (Nov 10): Hong Leong Investment Bank (HLIB) Research is neutral on Genting Malaysia Bhd’s (GenM) 49%-owned associate Empire Resorts Inc winning a mobile sports betting license in New York as it does not expect this segment to contribute to the group’s earnings in the near to medium term.
Its analyst Tan Kai Shuen, in a note on Wednesday (Nov 10), expects that Empire Resorts will need to undergo a gestation period before it can break even on mobile sports betting, as Tan anticipates heavy marketing spend in its initial launch, especially given the stiff competition with a total of nine players in the market.
Tan also estimated the venture to generate US$15.9 million (about RM65.9 million) of mobile sports betting annual net revenue for GenM.
“For comparison, this is roughly 1.8% of net gaming revenue from GenM’s Resorts World Genting (RWG) in 2019,” the analyst said.
Empire Resorts, part of a five-member consortium, is one of the two winning bids for mobile sports gaming licences awarded by the New York State Gaming Commission. Empire Resorts will be one of the nine operators licensed to operate mobile sports betting in New York.
According to Tan, New York is one of the most attractive sports betting states given its large population (8.4 million as at 2019) and its strong sports culture.
Nonetheless, Tan said the operating licence comes with an extremely high price tag, that is a 51% tax rate on gross gaming revenue, the highest tax rate in the US similar to New Hampshire.
For comparison, most states have a tax rate of between 5% and 20% on sports betting revenue.
“Furthermore, operators in New York will have to face stiff competition as the market share in New York is distributed among nine operators (versus only one operator in New Hampshire),” Tan said.
Tan also believes that part of Empire Resorts' recent capital raised is in anticipation of the marketing and operating expenses for the mobile sport betting operations.
Empire Resorts recently raised US$450 million in capital in October through a US$150 million equity injection from GenM and US$300 million through a bond issuance on the Singapore Exchange.
Separately, on the local front, Tan is encouraged by the lifting of interstate travel ban since Oct 11, as Tan believes GenM should be able to benefit strongly from local visitors due to pent-up demand and also restricted traveling abroad.
“This was witnessed in GenM’s operations in the UK and US, where both regions have already seen their revenues recovered to pre-Covid-19 levels,” Tan said.
Furthermore, the analyst said, the much-anticipated Genting SkyWorlds theme park is targeted to open in December to coincide with the school holidays that will draw both gaming and non-gaming crowds to RWG.
“The crowd pull from SkyWorlds should have a positive spillover effect on other attractions in RWG,” Tan added.
Tan maintained a "buy" call on GenM, revising up its target price to RM3.59 from RM3.28, as the analyst upgraded the enterprise value-to-earnings before interest, taxes, depreciation and amortisation (EV/EBITDA) multiple for RWG from 10 times to 11 times.
“We take this opportunity to upgrade the EV/EBITDA multiple for RWG, as prospects for this segment are improving with the return of crowds to RWG.
“Furthermore, with the addition of the SkyWorlds theme park, RWG will be able to attract a bigger and more diverse crowd from both gaming and non-gaming visitors,” Tan said.
At 10.15am on Wednesday, GenM had slipped one sen or 0.31% to RM3.19, valuing the group at RM18.82 billion.
Year to date, the counter had risen 19.48%.