Genting Malaysia Bhd has announced its decision to acquire the remaining 51% stake in Empire Resorts Inc. for US$41 million (RM177 million), gaining full control of the loss-making gaming operator. The acquisition will increase Genting Malaysia’s ownership of Genting Empire Resorts LLC (GERL), which owns Empire Resorts, a company already partially under Genting’s control. The transaction includes a debt assumption of US$39.7 million from Kien Huat Realty III Ltd, a company controlled by the Lim family, the founders of the Genting Group.

Strengthening presence in New York’s gaming market:

Empire Resorts operates notable assets such as Resorts World Catskills and Resorts World Hudson Valley, along with the mobile sports betting platform Resorts World Bet. According to The Edge Malaysia, Genting Malaysia first acquired a 46% stake in Empire Resorts in 2019 for US$128 million, injecting a significant amount of capital to stabilize the business. The total amount invested by Genting Malaysia into Empire Resorts has now reached US$724.4 million, making the latest acquisition a key step in consolidating its position in the New York State gaming market.

The acquisition is expected to bolster Genting Malaysia’s Resorts World brand, enabling better cross-marketing between Resorts World New York City and Empire Resorts’ properties. Genting Malaysia aims to leverage synergies from both operations to maximize revenue growth, improve cost efficiencies, and strengthen its market footprint in the northeastern United States. With full control, Genting can implement more effective strategies to integrate both operations.

While Genting Malaysia views this acquisition as a strategic move to enhance its New York gaming business, analysts are expressing concerns about the deal’s high valuation and its potential to strain the company’s financials. Hong Leong Investment Bank (HLIB) pointed out that the deal values Empire Resorts at an enterprise value-to-EBITDA multiple of 72.7 times, which is significantly higher than the average multiple of around 10 times for other US-listed casino operators like Las Vegas Sands and MGM Resorts.

HLIB analysts described the transaction as “expensive” and warned that it could negatively impact Genting Malaysia’s earnings. The deal’s hefty price tag could dilute profits in the short term and increase the group’s borrowings, with the company’s gearing ratio expected to rise from 1.03 to 1.13 times. The acquisition also includes the assumption of a US$39.7 million intercompany loan, further adding to the financial strain.

Since acquiring a stake in Empire Resorts, Genting Malaysia has struggled to turn the company profitable, despite multiple capital injections. Analysts from Nomura also expressed skepticism, noting that the lack of a clear path to profitability for Empire Resorts means Genting Malaysia may need to continue injecting capital into the business.

Potential impact on Genting Malaysia’s financials:

After the acquisition, Genting Malaysia’s total borrowings are projected to increase to RM13.5 billion, marking a 10.44% rise from the previous total of RM12.2 billion as of the end of December 2024. This increased debt load will raise Genting Malaysia’s gearing ratio, which could lead to additional financial pressure.

Despite the concerns raised by analysts, Genting Malaysia remains optimistic that the acquisition will ultimately improve its market share and profitability. The full acquisition will grant Genting Malaysia better control over Empire Resorts, offering more opportunities for operational synergies and cost reduction. However, analysts have warned that the integration of Empire Resorts could further delay Genting Malaysia’s earnings recovery, as the company continues to face challenges in turning around the loss-making operations.

The deal is expected to be completed by the end of the second quarter of 2025, pending regulatory approval from the New York State Gaming Commission. While the transaction will have no immediate effect on Genting Malaysia’s share capital, the acquisition is expected to have a positive impact on the company’s earnings per share, which is forecast to increase from 4.43 sen to 5.29 sen by the end of FY2024.

However, Genting Malaysia’s share price has seen a decline, falling 35% year-to-date, reflecting the market’s concerns about the company’s long-term financial prospects. Despite these concerns, the company’s stock saw a slight increase of 2.34% on the day the acquisition was announced, settling at RM1.75, with a market capitalization of RM10.39 billion.

Nomura and Maybank Investment Bank have both voiced reservations about the acquisition, with Nomura downgrading Genting Malaysia’s stock to “Reduce” and citing the high cost and risk of continued capital injections to support Empire Resorts. They also noted that the company’s earnings recovery post-COVID-19 has been slower than expected, with high capital expenditures and a weak cost base hindering profitability.

PublicInvest Research also expressed doubts, predicting that Empire Resorts would continue to face challenges due to market cannibalization from the launch of Resorts World Hudson Valley in 2022. The firm downgraded Genting Malaysia to a “Trading Sell” and lowered its target price to RM1.66, reflecting concerns over the company’s earnings recovery and the related-party nature of the transaction.