Genting Malaysia takeover bid sparks dividend hopes for Singapore shares: analysts
This follows Genting Bhd’s announcement of a conditional voluntary takeover offer
[SINGAPORE] Genting Bhd’s (Genting) RM6.7 billion (S$2.1 billion) proposal to buy out the minority shareholders of Genting Malaysia (GENM) could result in potential dividend implications for shares of its Singapore-listed arm, analysts said on Tuesday (Oct 14).
The analyses follow Genting’s announcement of a conditional voluntary takeover offer to acquire the remaining stake in GENM for RM2.35 per share, a move that would lead to its delisting from Bursa Malaysia.
Shares of Genting and GENM rallied on Tuesday to be among the most actively traded stocks on Bursa Malaysia.
DBS Group Research highlighted potential dividend implications for the group’s Singapore-listed arm Genting Singapore (GENS). Meanwhile, CGS International advised shareholders of the Malaysian unit to accept the offer, but noted that the deal may not be completed.
Potential dividend implications
According to a DBS research report on Tuesday, the takeover is strategically timed as GENM pursues a casino licence in New York, a project that could require a US$5.5 billion, or RM23.2 billion, investment.
Should the New York bid succeed, the substantial funding needs would increase the parent company’s leverage. DBS analysts believe Genting would then likely look to GENS for financial support.
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“Given GENS’ strong net cash position and robust free cash flow, we see higher dividends from GENS as the most probable avenue to support the group’s leverage,” the DBS note stated.
The bank has maintained its “hold” recommendation on GENS with a target price of S$0.80.
Risk of privatisation failure
Reiterating its “reduce” recommendation on GENM, CGS International on Monday advised shareholders of the Malaysian unit to accept the offer, calling it a “good opportunity to exit given its weaker earnings growth and cut in dividends”.
Analysts at CGS believe Genting’s management sees GENM as undervalued by a market concerned with past related-party transactions.
However, CGS also noted the possibility that the privatisation may not go through, given that many investors are likely still facing paper losses, as the offer price is below the RM2.50 to RM3 range the stock traded at in 2022-24.
The offer premium is also less than 10 per cent from its current share price, and some investors might prefer to wait for the results of the New York casino bid, which could provide long-term value if successful.
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