The revelation that a company linked with Genting Group and its Chairman and CEO Lim Kok Thay has bid for a Macau gaming concession might not sit well with current investors, even if its chances of winning are seen as low according to a note from investment bank Nomura.
As reported by Inside Asian Gaming, GMM Ltd was revealed as the seventh bidder for a Macau concession under the government’s re-tender process on Wednesday, joining the six current concessionaires in the fight for a maximum six concessions to be awarded.
While little is known about the exact ownership structure of GMM, the company lists Lim Kok Thay alongside Genting Malaysia’s President Lee Chong Yan, and CFO Koh Poy Yong as administrators – suggesting the entity is linked to either Genting Malaysia or its parent Genting Berhad.
A company representative called Mrs Chen also told media in Macau that GMM is associated with Genting Malaysia.
Following the news of GMM’s bid, analysts were generally cool overnight on Genting’s prospects of toppling one of the current six concessionaires given their significant investments into Macau over the past 20 years, but Nomura’s Tushar Mohata and Alpa Aggarwal do not rule it out entirely.
“Genting brings to the table its experience in developing family-friendly integrated resorts, which is a direction the Macau government wants its leisure industry to diversify to, away from the current overt focus on gambling in the incumbent concessionaires’ properties,” they wrote in an overnight note.
“That is not to say that the incumbents will be unable to pivot and de-emphasize gaming, just that they would also have to make material changes to their properties to do so, in our view.
“As a new entrant, [GMM] is making a fresh bid and can design a resort which addresses the government’s priorities, unlike the incumbents who have already designed and developed resorts more suited to the VIP-heavy days of old. GMM can also budget a lower capex to be more suited to the new normal of structurally lower industry GGRs.”
The greater challenge, according to Mohata and Alpa Aggarwal, may be convincing Genting’s current investors.
“We think investors in Genting Malaysia and Genting Berhad might take news of the bid negatively, mainly for two reasons,” they said.
“First, there is uncertainty around the recovery timelines for Macau’s gaming industry, given the ongoing zero-COVID strategy, which has drastically reduced industry GGR since the start of the pandemic and there is limited visibility on when restrictions would be eased like the rest of the world.
“The second concern, which we think is more pressing, is that some investors in Genting Malaysia (and consequently Genting) might not be comfortable with a Macau exposure. This might be if they are invested in the stock mainly due to its ASEAN exposure, or ASEAN reopening theme, or if they do not intend to have exposure to the uncertainties in Macau gaming in the near term.
“Investors might also be unhappy at the prospects of a large capex commitment and funding needs to develop a new Macau resort, given Genting Malaysia and Genting’s balance sheet is also stretched after two years’ of pandemic suppressed revenues and debt-raising.
“Some investors, in our view, might not like the fact that in case GENM wins a Macau concession, they would have to go through several more years of negative FCF, and any upside from an investment there might only be realised in the medium-term.”
In a separate note, JP Morgan analysts DS Kim and Livy Lyu observed that the recent bankruptcy of Genting Hong Kong “may not bode well” for the group’s chances of winning a Macau concession.
“In short, we’d be surprised if any of the six incumbents lost the license for the next term,” they wrote.
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