Genting Malaysia to buy UK online gaming company

by **Cals** Tue 06 Oct 2015, 01:58

Genting Malaysia to buy UK online gaming company

By Kenanga Research / The Edge Financial Daily | October 5, 2015 : 11:09 AM MYT
[You must be registered and logged in to see this image.]Genting Malaysia Bhd
(Oct 2, RM4.11)
Maintain outperform call with an unchanged target price of RM4.41: Last Thursday, Genting Malaysia Bhd’s (GenM) indirectly wholly-owned subsidiary, [size=16]Nedby Ltd, entered into a conditional sale and purchase agreement with RWI International Investments Ltdto acquire the latter’s entire 100% stake in Genting Aldemey Ltd for £7.2 million (RM48.22 million), which has net assets of £2.34 million and reported a net loss of £3.72 million for financial year 2014.

Genting Aldemey, whose principal activity is to operate online gaming activities in the United Kingdom, has a full eGambling licence valid from March 5, 2008 issued by theAlderney Gambling Control Commission and a combined remote operating licence dated May 8, 2015 issued by the Gambling Commission of the UK to manufacture, supply, install or adapt gambling software, to operate casinos and act as a betting intermediary.

Completion of the deal shall take place once the authority confirms that both above-mentioned licences will continue to be effective, following the change of corporate control of Genting Alderney as a result of this acquisition.

This is a related-party transaction as the seller RWI is 50:50 indirectly owned by parent company Genting Bhd and chairman Tan Sri Lim Kok Thay.

RWI acquired Genting Alderney from Genting Singapore plc ([You must be registered and logged in to see this image.] Valuation: 1.40, Fundamental: 1.75) in September 2012 for £3 million.

Subsequently, RWI subscribed to 9.3 million redeemable preference shares in Genting Alderney for £9.3 million.

Although this is a related-party transaction, we believe it is fair to park Genting Alderney under GenM, which houses the group’s UK casino operations under Genting UK, since Genting Alderney is involved in online gaming activities in the UK.

The purchase price of £7.2 million, which is based on an indicative discounted cash flow valuation range of between £2.9 million and £11.5 million, will not have any material impact on GenM’s balance sheet given its net cash position of RM1.07 billion as at end-June.

Meanwhile, we do not expect this acquisition to have any significant impact on earnings.

The RM5 billion 10-year refurbishment programme will be a structural change to its home turf operations and act as an earnings catalyst from 2016.

A theme park is on track to be ready by end-2016 or early 2017, with no cost overrun at this juncture.

On the other hand, the yield management initiative should help to improve earnings, while the Resorts World Casino New York City numbers should be sustainable.

Resorts World Sdn Bhd’s new 300-room luxury hotel is expected to reduce its operating loss and break even in the second half of 2015. However, the UK operation could continue to see tougher times due to its VIP-centric nature. —Kenanga Research, Oct 2
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