Market Pulse: Genting International (20 Sep 2007)

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Genting International: Meaningful upside, upgrade to Buy

Summary: Genting International Public Ltd (GIL) has recently completed its equity fund raising to part finance the development of Resort World at Sentosa. However, the cost of equity was higher than expected, which in turn led to more shares being issued than our original estimate, resulting in dilution to valuation. Furthermore, with the rising cost of construction in Singapore, we have also allowed for cost inflation, raising total project cost by 26% to S$6.3bn. On a positive note, we do not expect any more cash calls to shareholders and any future funding is likely to come from debt. Nevertheless, the net effect of the double whammy of cost inflation and higher cost of capital is that our overall fair value has to be adjusted down from S$0.86/share to S$0.76/share. The investment case for GIL remains on its ability to win more casino concessions. In that context, GIL has the potential to win more licenses in the UK as well as from ASEAN countries and Japan. The lower valuation notwithstanding, the recent sell down of GIL means that there is a meaningful upside for investors willing to have a mid to longer term view. We thus upgrade our rating on GIL from HOLD to BUY. (Winston Liew)

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