KUALA LUMPUR (April 27): Genting Malaysia Bhd shares rose as much as 3% or eight sen on Thursday (April 27), following its announcement of a proposed divestment of 15.47 acres (6.26 hectares) of land in Miami by its wholly-owned unit for US$1.225 billion (RM5.433 billion) cash.
The stock hit an intraday high of RM2.75, after trading was suspended from 9am to 10am in relation to the announcement.
However, its shares had pared gains to trade at RM2.73 by the noon market break, up six sen or 2.25%, giving it a market capitalisation of RM16.21 billion.
Its trading volume of 12.03 million shares was the highest among blue chips as at the noon break, but relatively moderate across all Bursa securities, being the 30th most actively traded counter.
The company’s parent — Genting Bhd — meanwhile saw its shares rise as much as 1.7% to an intraday high of RM4.74, before paring gains to trade at RM4.71, up five sen or 1.1%, valuing the group at RM18.26 billion.
For the divestment, the land buyer is Smart Miami City LLC, which is ultimately owned by South Florida-based real estate developer Terra Group founders David and Pedro Martin, according to Genting Malaysia in a stock exchange filing on Thursday.
The disposals, which require shareholders’ approval, would enable Genting Malaysia to recognise an estimated gain of US$967 million.
AmInvestment Bank Bhd has been appointed as the principal adviser for the deal, while JLL Valuation & Advisory Services LLC is the independent land valuer.
No special dividend
Genting Malaysia has made it clear that cash proceeds from the disposal are intended to be utilised for general corporate and investment purposes, including the funding of future investments as and when they arise.
In a research note on Thursday, JPMorgan analysts Jeffrey Ng and Sigrid Qiu said the exercise not only unlocks value of non-core assets, but also signifies that Genting Malaysia is preparing capital for its bid for a downstate New York gaming licence.
“Investors have never valued the Miami assets, as they were sleeping assets awaiting a gaming licence. Genting Malaysia originally bought the Miami Herald land for US$246 million in 2011. The initial hope was to win a gaming licence and build a casino, but that hope never came true,” they said.
“We do not expect a special dividend, as the unlocked capital is already earmarked. Genting Malaysia is bidding for a New York table gaming licence, and the projected capital expenditure is US$1 billion,” they added.
If Genting Malaysia fails to secure a New York gaming licence, Ng and Qiu said the gain from the asset sale could then be used to pare down debt, potentially saving interest cost of US$23.8 million, boosting steady state profit after tax by 8%.
“The bidding process is likely to take longer than expected, with the release of the final result likely early next year.
“The region’s two existing race course-based casinos — Genting’s Resorts World New York City and MGM Resorts International’s Empire City Casino — are the leading contenders, as they both already have existing infrastructure to turn into full casinos,” they said.
The analysts have an “overweight” rating for Genting Malaysia, with a target price (TP) of RM4.00, given the post-pandemic growth prospects of its flagship resort in Malaysia, potential New York gaming licence and sustainable dividends.
Maybank Investment Bank analyst Yin Shao Yang, who has a “buy” rating and a TP of RM2.97, estimated that Genting Malaysia could realise proceeds of over RM4.4 billion, and a gain on disposal of more than RM2.9 billion or 52 sen per share.
“More than a decade after entering the Miami property market, Genting Malaysia is likely to exit it, but with a whopping profit in tow. Yet, we do not expect Genting Malaysia to declare special dividends, but instead expect it to fortify its balance sheet, as it bids for a lucrative downstate casino licence in New York,” he said in a research note on March 27.
“Recall that we estimated that a downstate casino licence could add over 53 sen per share to our discounted cash flow-derived TP,” he added.
Yin said Genting Malaysia currently operates the Hilton Miami Downtown hotel on the aforesaid property, but it contributed only US$4.8 million or less than 1% to group earnings before interest, tax, depreciation and amortisation for the financial year ended Dec 31, 2022.
“Thus, the sale of the aforesaid property will not negatively impact our Genting Malaysia earnings estimates materially,” he said.
According to Bloomberg data, analysts have 15 “buy” ratings, four “hold”, and one “sell” for Genting Malaysia, with a consensus TP of RM3.28.