Deutsche Bank said the plunge in Genting Malaysia’s shares in the wake of its lawsuit over its planned theme park has made the risk-reward favorable.
The stock tumbled 16.67 percent to end at 3 ringgit on Tuesday.
Genting Malaysia has reportedly sued Walt Disney and Twenty-First Century Fox in the U.S. for more than S$1 billion, alleging the two were walking away from a contract to build a Fox-branded theme park in Malaysia. Genting has said that so far, it has invested more than US$750 million in the project.
“The initial agreements were too favorable for GENM, in our view, driving delays in the theme park’s opening as Fox sought to renegotiate the agreement,” Deutsche Bank said in a note on Tuesday. “If Genting rebrands the theme park, it concedes defeat while moving the theme park ahead in its current form risks more lawsuits.”
But the investment bank added that the market has “been efficient” in pricing in the potential earnings forecast cuts.
It said the theme park was 4 percent of its 2019 and 10 percent of its 2020 forecasts for earnings before interest, tax, depreciation and amortization (EBITDA).
Deutsche Bank added that if Genting Malaysia wins its lawsuit, it could be awarded US$1 billion in costs and damages, which is around 25 percent of its market capitalization.
But it said that while those were positives, the lawsuit has hurt investor confidence in the shares, and it could face lower margins if it rebrands its theme park.
Genting Malaysia also needs to provide greater transparency, Deutsche Bank said, urging more disclosure via an investor conference call to boost confidence.
The company could also monetize its Miami land, which the bank estimated was worth around 10 billion ringgit, compared with 1 billion ringgit in 2008, Deutsche Bank said.