Genting Singapore to lose $16m on Echo disposal

DBS says share price is already back to pre-Echo levels.

Here's more from DBS:

Right move. GENS is placing out its entire 4.8% stake (39.6m shares) in Echo Entertainment via Citigroup at A$3.99 (2.7% discount to last traded price). We expect GENS to recognise S$16m loss on disposal (2% of 2012F earnings) based on average entry cost of A$4.30. Total proceeds of A$158m should boost GENS cash reserves to S$1.9bn (US$1.6bn) – handy for future opportunistic M&As.

What a relief! We see this positively as it partially removes the overhang on GENS’ share price given earlier fears of an expensive takeover tussle against Crown for Echo in the matured Australian gaming market.

Australian Financial Review highlighted earlier that Crown is expected to receive approval to increase its stake in Echo to >10% by next month (GENHK has made a similar application and remains committed to increasing its stake in Echo from 5.1% which will likely remain a portfolio investment for now). We think GENS is better off saving its bullets for new IR developments with stronger growth potential eg Japan, Korea (timing however remains uncertain).

But fundamentals remain soft. While there could be positive knee-jerk reaction, we are reluctant to upgrade our call on GENS as underlying Singapore gaming business is expected to remain soft given the continuing cautious lending to VIPs (further award of junket licences will likely come later rather than sooner) and slower growth in touristarrivals (albeit 4Q12 will be seasonally stronger along with completion of RWS Western Zone).

GENS share price has already rebounded back to pre-Echo levels, while policy risks still persist with proposed amendments to the Casino Control Act to be tabled in Parliament by end-2012.

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