JPMorgan analysts Jeffrey Ng and Sigrid Qiu said the move by GenM to sell the land signified that it was preparing for a capital bid for a casino in Downstate New York.
“Genting Malaysia is bidding for a New York table gaming licence, and the projected capital expenditure is US$1 billion (RM4.5 billion),” the analysts said.
It now already operates a casino in the state through its subsidiary Resorts World New York City. Parent company Genting Bhd operates its own casino in Las Vegas.
GenM announced on Thursday that its subsidiary Resorts World Miami LLC had entered into a conditional sale and purchase agreement with Smart Miami City LLC for the sale of the land for US$1.225 billion (RM5.43 billion).
Sharing the same sentiment is Kenanga Investment Bank Bhd analyst Teh Kian Yeong. He pointed out that there was no immediate value in holding onto the Miami property further given that the state of Florida does not allow a casino on non-native American soil.
“It means GenM will see a RM4.32 billion gain, which is positive given that the land has been left idle since its acquisition,” he added.
The JPMorgan analysts said that even if GenM failed to secure a second New York gaming licence, the proceeds from the sale could be used to pay down debt and save on interest costs amounting to US$23.8 million (RM106.16 million), boosting 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,” they said.
They added that the two existing race course-based casinos in New York — Genting’s Resorts World and MGM Resorts International’s Empire City Casino — are the leading contenders as they both already have existing infrastructure to turn into full casinos.
GenM had paid US$259 million (RM789.95 million) for the Miami land in 2011 with the hope of winning a gaming licence and building a casino. However that hope never came true.
News that the group had received bids for the land surfaced in March.
In its announcement on Thursday, GenM said the proceeds from the sale would be utilised for general corporate and investment purposes, including the funding of future investments.
Sentiments in the US
Nomura analysts Tushar Mohata and Alpa Aggarwal said the proceeds from the land sale would help to improve the balance sheet for both GenM and Genting Bhd after years of capital expenditure, Covid-19 slowdown and generous dividends that had resulted in its net debt-to-equity ratio rising from 19% as of end-2019 to 71% as of end-2022.
GenM’s cash and cash equivalents stood at RM3.04 billion at the end of 2022.
Nomura said a rough calculation showed that GenM’s net debt to equity would fall back sharply to 21% post the sale.
For the full financial year, GenM narrowed its net loss to RM519.98 million from RM946.83 million in FY2021, as revenue more than doubled to RM8.6 billion from RM4.16 billion previously.
The sale of the Miami property is unlikely to affect GenM’s earnings as it contributed to less than 1% of the group’s earnings before interest, tax, depreciation and amortisation for the financial year ended Dec 31, 2022.
Of the 20 analysts covering GenM on Bloomberg, 15 have “buy” calls, four “hold” calls, and one “sell” call, with a consensus target price of RM3.28.
At press time GenM’s share price stood at RM2.71, up 1.5% or four sen since the sale was announced. Genting Bhd’s share price has also moved up by four sen to RM4.70 in the same time period.