Friday, June 15, 2012

Genting Singapore:Too much reading between the lines (DBSV)

Genting Singapore
BUY S$1.46
(Price as of 12 Jun 2012)
Price Target : 12-Month S$ 2.05
Too much reading between the lines

• Echo’s stake likely an opportunistic investment for now
• Better off saving bullets for new markets rather than outright tussle with Crown in their homeground
• Maintain Buy and SOP-based TP of S$2.05

Sizing up. According to Reuters, Crown’s billionaire owner James Packer is planning alliance talks with GENS to take control of Echo Entertainment Group. Crown owns 10% of Echo (seeking regulators’ approval to raise to 20%) while GENS just acquired a 5.1% stake for S$305m. Echo’s Chairman recently resigned driven by Parker’s aggressive discredit campaign. Echo is also due to announce a capital raising exercise, making a takeover bid more complicated and expensive.

Prized catch. Echo holds an exclusive licence to operate casinos in New South Wales until 2019 (owns newly renovated The Star, Sydney and 3 casinos in Queensland - Treasury in Brisbane, Jupiter’s in Gold Coast & Jupiter’s Townsville). Packer’s long-term plan may be to leverage on Echo’s licence to build a new A$1bn luxury casino at Barangaroo. GENS’ Echo stake may be just an opportunistic investment for now (Genting group had previously run Burswood Casino in Perth, now owned by Crown).

Amicable partnership works best. An outright tussle for Echo is unlikely to be wise given Crown’s home-ground advantage although GENS is in a stronger financial position. While this should help put GENS’ perpetual bonds proceeds to use and boost growth/diversify earnings, GENS may be better off saving bullets for potential liberalisation of more exciting gaming markets in Asia (eg Japan and Korea, but timing likely later rather than sooner). Australia GGR growth is expected to remain lackluster, while regulatory approval may be a challenge. Potential wildcard if GENS gets to partner Crown in its 33% stake in Melco Crown Entertainment (Genting Group’s much awaited exposure to Macau), but probity checks by Singapore CRA may pose an issue.

Putting cash to use. GENS has still room to gear up as current net gearing is only 38% (if we treat perpetual bonds as debts) while operating cashflows is a strong US$1.3b p.a. Should GENS raise its stake in Echo to 50.1% or even 100%, GENS will need to fork out US$1.67bn or US$3.7bn respectively (assuming 20% premium). This would value Echo at 11x FY13 EV/EBITDA, above both Crown’s and GENS’s 9x - justifiable if synergies can be derived (potential strategic move to protect market share in Asian VIP segment). GENS can leverage on its VIP database and proven bus program to tap on the large Chinese community in Australia. As it is, Echo could boost GENS’ 2013F net profit by 9-17%, which should help make up for GENS perpetual bonds’ 5.1% interest expense (9% of earnings).

Source/Extract/Excerpts/来源/转贴/摘录:DBS Vickers Research
Publish date: 14/06/12

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Warren E. Buffett(沃伦•巴菲特)
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高估期间, 卖对, 不卖也对, 买是错的。
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