Hold | Target price: SGD1.31

Still no reason to BUY. Genting Singapore (GENS) announced that it will sell its entire 4.8% stake in Echo. We believe that related company Genting Hong Kong could take up this stake and that GENS investors will view the disposal positively. We estimate that GENS will recognise a minor SGD10.1m loss on disposal, <2% of our FY12 earnings estimate. That said, the weak global economy continues to cap gaming revenue growth. Maintain HOLD call and SGD1.31 TP.

To sell entire 4.8% stake in Echo... GENS entered into an agreement with Citigroup Global Markets Australia Pty Ltd (Citigroup) to dispose its entire 4.8% stake in Echo Entertainment Group (EGP AU, Not Rated) in a block trade on the Australian Securities Exchange (ASX) at AUD3.99/sh. Citigroup will fully underwrite the sale.

… to Genting Hong Kong? On the same day, Genting Hong Kong (GENHK SP, BUY, TP: SGD0.53) stated that it would continue to apply to the New South Wales Independent Liquor and Gaming Authority to raise its own stake in Echo from 5.1% to >10%. Therefore, we would not be surprised if the 4.8% stake found its way to Genting Hong Kong.

Likely to be well received. When GENS acquired the Echo stake in the middle of this year, we viewed it positively as we believed that the move compelled rival bidder Crown (CWN AU, Not Rated) to allow GENS to take a stake in one of its Macau casinos in order to prevent a bidding war for Echo breaking out between them. As many did not concur with us, we believe that investors will view its disposal positively.

Immaterial impact. The stake comprises 39.6m shares acquired at an average price of AUD4.19/share (33m shares acquired on the ASX at an average AUD4.37/share, 6.6m shares subscribed for during a 1 for 5 rights issue at AUD3.30/share). At the disposal price of AUD3.99/share, GENS will recognise a AUD7.9m (SGD10.1m) loss on the sale.

Maintain HOLD call and SGD1.31 TP. As the loss on disposal constitutes <2% of our FY12 forecasts, we leave our earnings estimates and 11x FY12 EV/EBITDA-based TP of SGD1.31 unchanged. With the weak global economy continuing to cap gaming revenue growth, we see no reason to buy GENS at this stage.

Minor impact to balance sheet as well. The disposal will raise AUD158m (SGD202.2m) or SGD0.02/sh. Post-disposal, GENS’ net cash position will improve modestly to SGD663.5m or SGD0.05/sh.

Source: Maybank Kim Eng Research - 20 Sep 2012