Date of Report: October 15, 2024
Broker: CGS International Securities
Complaint and Legal Risks
- On October 14, 2024, Genting Malaysia (GENM) announced that its indirect subsidiary, Genting Americas Inc. (GAI), was named in a complaint filed by RAV Bahamas Ltd (RAV) on October 7, 2024, in the US District Court, Southern District of Florida.
- The complaint relates to operations at Resorts World Bimini (RW Bimini) in the Bahamas, where RAV is seeking damages exceeding $600 million.
- GENM holds a 78% stake in BB Entertainment Ltd (BBE), which operates RW Bimini, with RAV owning the remaining 22%. GENM has dismissed the complaint as baseless and intends to vigorously defend the case.
- If found liable, the claim could amount to RM0.46 per GENM share, based on its share base of 5.67 billion shares.
Financial Performance and Recovery
- RW Bimini, a loss-making operation since 2013, showed a positive EBITDA in the first half of 2024 due to various new initiatives post-COVID.
- RW Bimini’s revenue grew past $30 million pre-pandemic, but operational costs led to continuous EBITDA losses from 2013 to 2023.
- In response to these financial struggles, RW Bimini launched initiatives like the RW Bimini Cruise Port and partnerships with international cruise operators, boosting revenue in 2023 and reducing EBITDA losses to $6.8 million.
- GENM’s annual report reveals that BBE’s liabilities increased from RM1.5 billion in 2015 to RM4.38 billion by December 31, 2023, contributing to continuous losses.
Future Outlook and Valuation
- The broker, CGS International, maintains an “Add” recommendation on Genting Malaysia with a target price of RM3.65, noting a potential upside of 63.7% from the current price of RM2.23.
- The report forecasts a robust three-year EPS CAGR of 42% from FY23 to FY26, driven by a recovery in tourism and revenue growth from Resorts World Genting (RWG).
- GENM is trading at 12.7x CY25F P/E and 4.5x CY25F EV/EBITDA, which are seen as undemanding, given the company’s strong free cash flow generation and attractive dividend yields.
- Risks include potential adverse outcomes from the RAV lawsuit and concerns over the Nevada gaming regulator filing complaints against Resorts World Las Vegas, managed by GENM’s parent company, Genting Berhad.
Shareholding and Financial Metrics
- Genting Berhad holds a 49.3% stake in Genting Malaysia.
- The market cap stands at US$2.941 billion, with an average daily turnover of US$4.86 million.
- Key financial forecasts for FY24-FY26 include steady growth in net revenues and EBITDA, with FY24 EBITDA expected to reach RM3.214 billion.
- GENM’s dividend yield is projected at 6.73% for FY24, increasing to 8.09% by FY26.
Key Risks and Catalysts
- Key risks to GENM’s valuation include higher-than-expected operating costs and slower recovery in Malaysian tourism, which could affect RWG operations.
- Potential catalysts for a re-rating include stronger-than-expected performance from Malaysian operations and improved operating margins.
This detailed information was extracted from the report, and the analysis was made based solely on the content of the provided PDF.
