The offer price is also 14% above the average target price of RM2.06 set by analysts covering the stock and close to 10% above its last traded price of RM2.14 before the offer was made.
However, rarely does one approach the betting table with a risk-averse mentality. Furthermore, depending on when one invested in GENM, returns as a shareholder could differ significantly.
For instance, a back-of-the-envelope calculation shows that a shareholder who had invested in 100,000 GENM shares about 15 years ago would see total returns of RM225,780, or a 140.6% increase.
This figure is derived from a capital appreciation of 52 sen per share, based on investing in the stock on Jan 4, 2010, when the share price stood at RM1.62, compared with the last traded price of RM2.14 before the offer. It also includes dividends received over the years, amounting to RM1.76 per share.
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For this shareholder, with the potential of a full-fledged casino licence in New York, which some have viewed as a game changer for the gaming operator, alongside the company’s other activities in the US, holding onto the stock could mean higher returns in the future.
Maybank Investment Bank Research highlights three potential catalysts that could boost GENM’s valuation: the revaluation of the Miami land it wanted to sell for US$1.2 billion in 2023 (adding 55 sen to fair value), the potential sale of Empire Resorts’ non-gaming assets to the Sullivan County Resort Facilities Local Development Corp (30 sen), and the potential win of the casino licence in New York (at least 48 sen to fair value).
The “blue sky” scenario, where all three catalysts materialise, would lift Maybank IB Research’s fair value to RM3.28 per share.
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Meanwhile, for an investor who had purchased 100,000 GENM shares at its peak of RM4.15 in August 2017, while collecting total dividends of RM1.19 per share over the years, he would still not have recouped his investment, leaving him with a loss of RM81,500 based on the last traded price of RM2.14 before the offer.
For this investor, there could be more reason to stay invested in GENM and hope the blue sky scenario materialises in order to recover the investment made in the gaming operator.
Looking at the last 15 years, GENM’s dividend peaked in FY2019 ended Dec 31, 2019, at 20 sen per share. Since then, dividends have trended downwards, with the latest amount totalling 10 sen per share in FY2024. Analysts are estimating around an eight sen per share dividend for FY2025.
Related-party transactions and impairments
Long-time GENM minority shareholders should be familiar with the related-party investments the company undertakes, which more often than not do not require shareholder approval.
Since 2010, GENM’s related-party investments have totalled over RM3 billion, largely stemming from transactions related to Empire Resorts Inc.
In 2019, GENM acquired a 49% stake in Genting Empire Resorts LLC, which holds Empire Resorts, from Kien Huat Realty III Ltd — a private investment vehicle of the Lim family — for US$159.7 million (then RM661.1 million).
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However, Empire Resorts has continued to incur losses even six years after GENM bought the 49% stake. GENM has continued injecting capital via the subscription of preference stock over the last six years, totalling US$460 million (RM1.96 billion) since 2019. In 2022, it also purchased 1,510 Series F Convertible Preferred Stocks of Empire Resorts worth US$100 million (then RM440.2 million) from Kien Huat Realty.
In May, GENM announced an agreement with Kien Huat Realty to buy the remaining 51% equity interest in Genting Empire Resorts LLC, which wholly owns Empire Resorts, for US$41 million (RM176.2 million). The agreement also involved Kien Huat assigning a US$39.7 million inter-company loan owed by Empire Resorts to GENM.
If one were to include the subscription of preference stock, the acquisition of Kien Huat’s preferred stock of Empire Resorts, and the equity purchase of Genting Empire, GENM’s total investment in Empire Resorts amounts to a whopping US$760.7 million ($987 billion), of which US$300.7 million was paid to Kien Huat Realty for the equity stake and preferred stock.
Analysts do not expect Empire Resorts to turn around soon, suggesting that GENM may need to continue injecting capital into the loss-making entity.
It is noteworthy that GENM’s impairment loss attracted attention in 2018, when it impaired RM1.83 billion for its investment in promissory notes issued by the Mashpee Wampanoag Tribe to finance pre-development expenses for a destination resort casino in Taunton, Massachusetts. The notes carried fixed annual interest rates of 12% and 18%.
GENM stated in its 2018 annual report that the US government had concluded that the tribe did not satisfy the conditions under the Indian Reorganisation Act to have the land in trust for an integrated gaming resort development. This resulted in GENM recording a RM1.83 billion impairment loss due to uncertainty over recovery.
As a result, GENM posted a net loss of RM86.3 million on revenue of RM9.92 billion in FY2018, reversing the net profit of RM1.07 billion it recorded the previous year. The company returned to profit in FY2019 with RM1.33 billion, but the relief was short-lived as the Covid-19 pandemic hit, pulling the gaming operator into losses in FY2020, FY2021 and FY2022.
GENM recorded impairment losses of RM590.7 million, RM240.5 million, and RM412.3 million in FY2020, FY2021, and FY2022, respectively.
In recent years, GENM has returned to profit, but net profit remains a fraction of pre-pandemic levels, when annual net profit exceeded RM1 billion.
In FY2023, GENM posted a net profit of RM436.8 million on revenue of RM10.19 billion. Net profit slipped in FY2024 to RM251.2 million, even though revenue inched up to RM10.91 billion. For 1HFY2025, GENM’s net profit totalled RM489.33 million on revenue of RM5.51 billion.
The company’s share price has risen 4% year to date, closing at RM2.33 last Friday, valuing the gaming operator at RM13.21 billion.
