Betting against the house - Genting ?

The market has been very volatile and driven a lot by newsflows. Since it has been a while I did not talk any stock specific, I am going to do it for fun today.

(TheEdgeMalaysia)SINGAPORE: Genting Singapore plc, which is building one of two casinos in the island nation, surged to a record on Sept 3 on speculation its S$6.6 billion (RM16.2 billion) resort casino in the city-state will open ahead of schedule.
The stock surged 9.3% to S$1.17. It recently traded 7.5% higher at S$1.15, set for its highest close since listing in September 1991.

“It’s possible for the resort casino to open by the end of the year,” CLSA Asia Pacific Markets analyst Aaron Fischer said in a telephone interview.

The project is still scheduled to open in early 2010, according Robin Goh, spokesman at Resorts World, the Genting Singapore unit building the casino.

Fischer wrote in a note dated Sept 1 that Genting Singapore could be worth as much as S$3 based on the city-state’s potential gaming revenue of between US$3.2 billion (RM11.3 billion) and US$4.7 billion once the two casinos open next year. That compares with Macau’s US$14 billion gaming revenue.

By the time The Edge published this around 2 pm, the Genting stock price already selling for RM6.74. The stock price closed at RM 6.81 for the day, you make 1% assuming you bought when the second session opened. Should you be happy? What I am alluding is the big boys already bought ahead. CIMB research released a report with a target price of RM 9.30 yesterday and they disclosed that they have position in this stock. So can you still make money?

Gaming stocks will typically run up about 1.5 - 2 months before the opening. Deutsche Bank did a price study recently. They found out Melco International, LVS Ventian Macau, Galaxy-Starworld and Wynn Macau share price went up 93%, 34%, 21% and 27% respectively 1.5 month before the opening. Genting price already went up more than 70% from the low, surely this will complicate things by applying the same formula. Taking out Melco as an anomaly, assuming the share price can run up from RM 6.00 from the most recent correction, 25 - 30% further rise will take you to RM 7.5 - RM 7.8. So I believe CIMB is over-stretching their target.

To take biasness out, let me pull out an older research report. Goldman Sachs released a research note to their clients on July 31, 09 with an impressive workout Singapore gaming market size potential of US $ 3 billion. They assinged a very conservative target of RM 6.60 even though they are aware of such big potential. They reckon the potential earning downside in Genting are cannibalization and poor showing from non-gaming sector.

If gamble you must, be sure you know who are betting against you.Good luck!

Disclosure : None