Genting International

12-Month Target Price: S$0.69

Market Value -Total: S$5,923.2 mln

NTA/Share (S$) 0.16
Book Value/Share (S$) 0.35
No. of outstanding shares (mln) 9,631.2
52-week Share Price Range (S$) 0.59-0.925

Major Shareholders: Genting Berhad 56.6

Recommendation & Investment Risks
• We maintain our Hold recommendation with a lower 12-month target price of S$0.69 (previously S$0.81).
• Our target price continues to be based on RNAV. We have valued the Sentosa project based on a combination of DCF with implied IRR of 15% and EV/EBITDA (target 14x 2010 discounted at 15%). We continue to attach a premium to RNAV to reflect potential
enhancements from future projects, but have lowered the premium to 10% from 20% given the delays in further liberalization in U.K.’s casino industry and the fact that new major projects are not likely in the immediate term.
• GIL’s earnings predictability is low as fair value gains/losses, project costs and exchange gains/losses can result in volatility in the bottomline. Nonetheless, the focus is not on near-term earnings but on the potential contribution from the Sentosa project as well as opportunities for GIL to participate in future liberalization of the casino industry in Asia and the U.K.
• Risks to our recommendation and target price include regulatory risk, and rising competition that comes with the regulatory reforms in U.K.’s casino industry and potential legalization of casino activities in various Asian countries. Additionally, successful execution of the Sentosa project is key.

Results Review & Earnings Outlook
• GIL’s recurring earnings were below our expectations due to the weaker than- expected performance of the U.K. casinos, following the gaming duty hike in Apr. 2007 and the smoking ban in Jul. 2007.
• The main interest in GIL is not on the existing operations, but rather the Singapore integrated resort (Resorts World at Sentosa). Construction for the project is on track and the resort is slated for a soft opening in early 2010. As at end 2007, over S$600 mln of contracts have been awarded and another S$1 bln will be awarded in 1H2008. Resorts World at Sentosa had earlier this month secured S$4 bln of credit facilities to part finance the S$6 bln project.
• GIL reported a net loss of S$381.5 mln due to a S$472.7 mln impairment charge for its U.K. operations. This largely relates to the valuation of Stanley Leisure following the gaming duty hike and smoking ban. At the operational level (excluding one-off items), the leisure & hospitality division was profitable (S$66.6 mln operating profit vs S$38.5 mln in 2006).
• We have lowered our earnings projections after factoring in a tougher operating environment for its U.K. casinos. Aside from the duty hike and smoking ban, there has been a slight slowdown in some of its markets as a result of the credit crunch, while overheads will be higher due to the opening of new casinos. GIL has been granted 6 new casino licenses – one was opened in May 2007 (Nottingham) and one in Dec. 2007 (Liverpool).