Published September 11, 2009

Punters go dicing with Genting chips

Heavy trading sees Genting (S) share price fall; M'sian parent holds its own

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By ARTHUR SIM
IN SINGAPORE AND
S JAYASANKARAN
IN KUALA LUMPUR

IT'S 'game on' as punters come out to play Genting Singapore shares.

Some 395 million shares were traded yesterday with prices swinging from a low of $1.08 at the start of the trading day to a high of $1.17 by mid-day.

The share price then proceeded to fall again to about $1.12 before a late rally brought the price up to close at $1.14, representing a fall of 4.2 per cent from the previous close of $1.19 per share.

The high trading activity followed news that Genting Singapore was seeking a rights issue at an issue price of $0.80 for each rights share, on the basis of one rights share for every 5 existing ordinary shares, possibly raising around $1.6 billion.

As reflected in the price movements yesterday, market reaction to the news has been mixed.

In a note released yesterday, OCBC Investment Research said that given the recent run-up in Genting Singapore's share price, it believes it may just be a good time to raise some cash as there have been some concerns about the cost overruns at Resorts World at Sentosa as well as its payment of its syndicated loan obligations of $4 billion in 2011 and its $450 million convertible bonds in 2012. However, OCBC added: 'We think that these concerns may be overwrought. Instead, we see the move as more of an insurance, should there be any hiccups in the global financial system again.'

In view of the possibility of Resorts World at Sentosa opening before year-end and a more upbeat regional economic outlook, it was also adjusting its fair value from $0.85 to $1.05 per share. It also raised its FY2010 revenue forecast 11.4 per cent to $774.7 million and reduced its loss forecast 66.7 per cent to a loss of $20.7 million.

OCBC said it is maintaining a 'hold' rating.

The rights issue took some by surprise

Nomura said in a note: 'Given the anticipated strong cash flow from the integrated resort (IR) project, Genting Singapore is not in urgent need of cash, in our view.' It added: 'We maintain our view that Genting Singapore's IR will be a great success. At the $0.80 per share rights issue price, its enterprise value is roughly about $17 billion.'

Industry watchers expect the Asian gaming market to grow at a compound annual growth rate (CAGR) of 15.7 per cent for the next five years.

In a report by Dow Jones, Goldman Sachs said: 'We think the market may be too optimistic on Singapore gaming demand and the competitive outlook.' It is keeping the stock at 'sell', with a target of $0.65.

In Malaysia, reaction to the rights issue initially saw investors sell down Genting Bhd, Genting Singapore's parent. Genting Bhd owns 54 per cent of Genting Singapore and many feared it might have to borrow for its RM2.1 billion (S$856 million) share of the rights issue.

Having digested the news, however, investors seemed to agree with the majority of the securities houses. Genting shares rose 1.6 per cent yesterday to RM6.97 apiece.

JPMorgan rated the move as 'positive' for Genting Bhd as investors 'should expect more capital management and rationalisation of assets going forward'. It noted that while Genting Bhd had about RM300 million in spare cash, its subsidiary Genting Malaysia had RM5 billion in excess cash. Its target price for Genting is RM8.50.

Amresearch - the one house that correctly predicted the rights issue before the fact - was even more optimistic, raising Genting Bhd's fair value to RM8.95 and valuing Genting Singapore, on a discounted cash flow basis, at $1.28.

Maybank Securities sounded a lone dissenting voice, calling a 'sell' on the stock with a fair value of RM5.10. It said that, at current prices, it was trading at 20 times its 2009 earnings, which 'is almost as high as its 21 times peak in 2007' while its 18 times discount to its revised net asset value 'is unattractive'.

Nor did it think that the Singapore casino would be a success. 'Despite repeated assurances, we fear that the earnings outlook for Genting Singapore's Resorts World at Sentosa may not be as bright as touted,' it said.