Genting Singapore

CIMB on 11 June 2012

NO change to our earnings "outperform" rating or SOP (sum of parts) target price. Genting Singapore is trading at 7.5 times CY12 EV/Ebitda, a 27 per cent discount to its Macau peers.
Catalysts are still expected from potential market share gains and the full rollout of Westzone.
What happened: Genting Singapore confirmed last week that it holds a stake in Australia-listed Echo Entertainment. It remains tight-lipped on the size of its interest, though the press reported that Genting had built up a 4.9 per cent stake in Echo.

What we think
This comes hot on the heels of earlier speculation that Genting Singapore is eyeing Echo. Genting Singapore's current stake in Echo does not necessarily constitute an interest in the ultimate takeover of the company, but we do not rule out this possibility. There are press reports suggesting that Genting Singapore could be interested in striking a deal with Crown's James Packer to secure a foothold in Macau. Backed with net cash of $1.8 billion, Genting Singapore has hinted that its future acquisitions will not be restricted to greenfield projects. It recently raised $2.3 billion in perpetual capital securities at an interest cost of 5.125 per cent. We think it is in its interest to speed up the acquisition process. Among Echo's appeal is its Star City casino which is strategically located in Sydney. Based on its last traded price, Echo is valued at A$3.1 billion (S$3.9 billion). Assuming 1/3 equity financing, Genting Singapore's outlay will amount to about $1.3 billion. But we think the domestic regulatory approval process and Crown's 10 per cent blocking stake in Echo may prove to be challenges.

What You Should Do
Stay invested. Share price fell 4 per cent last Friday, partly due to concerns that its interest in Echo might spark a costly takeover bid. It is now trading at 7.5 times CY12 EV/Ebitda, a 27 per cent discount to its Macau peers. Save for economic headwinds, its long-term fundamentals are intact, meaning visible earnings and strong operational cash flow.

OUTPERFORM