Brokers' Take

Genting SingaporeMay 28 close: $0.71OCBC INVESTMENT RESEARCH, May 28
TWO major shareholders of Genting Singapore (GTSG) - controlled by the founding Lim family - have pared their stakes in the company. According to the company's filings, Lakewood Sdn Bhd sold about 265.809 million shares and Golden Hope Limited sold 649.073 million shares yesterday, all reportedly done at $0.72 each via placement agreements through JPMorgan Chase and UBS AG.

In total, the two parties sold nearly 9 per cent of the outstanding share capital of about 9.64 billion to raise $615 million.

However, as these were vendor shares, GTGS will not be getting any of the proceeds.

No negative implications behind the sale. Other than the sharp 16 per cent discount to the previous day closing price of $0.865, we do not think that there are any major negative implications behind the move. For one, reports suggest that the placement was made to close to 40 parties, including specialist gaming investors, long-only Asia funds and deal players who liked the big discount.

As mentioned in our earlier report, the outlook for the gaming market in Asia remains very promising - industry watchers expect the market to grow by 15.7 per cent CAGR (compound annual growth rate) for the next five years.

Lim family eyeing Mirage Macau asset? And the third reason for the stake sale could be related to talks that the Lim family is raising cash for a possible investment in MGM Mirage's Macau casino. Parent Genting Bhd and sister company Resorts World earlier bought a combined US$100 million of secured notes sold by MGM Mirage.

But given the link to Pansy Ho, the daughter of Stanley Ho, the investment could be quite a sensitive issue with authorities in Singapore. As such, we suspect the Genting group may not want to be directly involved.

The news of the discounted share sale has resulted in GTGS's share price tumbling 17.9 per cent on Wednesday to $0.71. As the share price is now 6.6 per cent below our recently revised fair value of $0.76, we upgrade our rating to 'hold'.

However, the near-term outlook for GTGS has not improved - we are still expecting its UK operations to languish for the rest of this year. Although we continue to expect a net loss in FY10, the opening of Resorts World at Sentosa in Q1 2010 could prove to be a wild card. Nevertheless, we would be buyers closer to $0.60 or so.

HOLD