Sentosa IR Project Budget Revised Up

Genting (S$0.685) - 3QFY07 results - Impairment hits 3Q, Sentosa cost raised
GIL's annualised 9M core net profit was 77% and 62% below ours and consensus
full-year estimate. It reported a S$393m net loss in 3Q. As expected, there were no
dividends. Topline from its UK operations was hurt by the the UK gaming duty hike
and smoking ban, which hurt 3Q margins. Interest expense was significantly higher,
while GIL took a S$455m impairment loss for UK assets. Its Sentosa IR project
budget is now revised up to S$6bn from S$5.2bn as GIL is enhancing the project's
value proposition with a higher-end target. As such, the project IRR of 15% is
unchanged. We now expect a large loss for FY07 and revise FY08-09 forecasts
17%-42% lower given to account for higher interest expense and depreciation. Our
end-CY08 sum-of-parts RNAV target price is revised to S$0.86 from S$0.89 after
taking into account dilution from its 3-for-5 rights issue and factor a 100%-interest in
Sentosa. GIL remains a solid play into Singapore’s tourism and gaming potential
with the nearer-term catalyst being the growing optimism of its upgraded Sentosa
project. Maintain Outperform.