Analysts more positive on Genting’s upcoming Empire Resorts
KUALA LUMPUR: Genting Malaysia Bhd’s (Genting) soonto-be 49 per cent-owned Empire Resorts (Empire) provided better than expected forecasts, leading analysts to peg a more positive view on the gaming group.
In a report, the research team at Maybank Investment Bank Bhd (Maybank IB Research) said Empire’s management provided two financial forecasts; both imply narrower loss before interest, tax, depreciation, and amortisation (LBITDA) or higher earnings before interest, tax, depreciation and amortisation (EBITDA) than initially forecast.
Positively, it pointed out that Empire’s management expects it to turn EBITDA breakeven next year. To this end, Empire will rationalise US$20 million to US$21 million in costs per annum.
“We did not expect Empire to EBITDA break-even over the next three years but Empire’s management expects it to EBITDA breakeven next year (FY20E) with or without online sports betting.
“Should online sports betting be legalised in the state of New York, Empire’s management expects it to contribute US$0.5 million, US$15 million, US$26 million, and US$40 million to FY21E, FY22E, FY23E, and FY24E EBITDA and drive Empire’s EBITDA to US$58.8 million by FY24E,” Maybank IB Research said.
With the positive results, the research team said, it is slightly sanguine on Empire’s outlook.
The forecasts given by Empire did not incorporate flagged synergies between Resorts World Catskills (RWC) Resorts World Casino New York (RWCNY) which will contribute US$12 million to US$14 million per annum to Empire’s EBITDA, it said.
It noted that Empire’s management has five turnaround plans in store and these include labour force reduction, salary reduction and hotel trades commission concession, marketing expense reduction, cross marketing efforts with RWCNY, and labour force synergies with RWCNY.
Maybank IB Research pointed out that it still expect Empire’s shareholders’ equity to fall to nil without further equity injection.
“Only this time, we expect it to happen by FY21E versus FY20E previously. Kien Huat RealtyGENM will also need to inject more equity into Empire as Free Cash Flow To Equity (FCFE) will remain negative in the near future (assumes nil debt repayment), we gather. Note also that Empire has plans to construct a US$100 million video lottery terminal facility (slot machines only casino) in Orange County while nursing gross debt of US$566.7 million as at end2QFY19,” it explained.
Seeing that it expected Empire to call on Genting for more equity injections, it is prudent to cut its FY19E, FY20E, and FY21E dividend per share assumptions from 19 sen per annum to 15 sen, 12 sen, and 15 sen to now reflect circa 60 per cent DPR (FY18: 53 per cent, FY17: 68 per cent, FY16: 60 per cent).
It also said, it adopted the more aggressive financial forecast, incorporate the synergies between RWC-RWCNY and assume that Empire’s debt’s interest rate would be renegotiated from 11 to 12 per cent to five per cent to arrive at a ‘blue sky’ scenario.
“In this scenario, Empire will not generate profits for Genting until five years from now, its shareholders’ equity will narrowly avoid falling to nil while Genting will need to inject more equity into Empire until FY22E at earliest,” it said.
It also expected Empire to generate lower losses.