Reuters  reported  that  Genting  has  increased  its  stake  in  Australia's Echo  Entertainment  Group  from  5.2%  to  6.6%  via  Genting  Hong  Kong Ltd.  We  believe  Genting  is  looking  to  get  a  foothold  in  Australia  via Echo’s presence in Sydney,  which  the  latter  has  proposed  to  expand. Maintain NEUTRAL on Genting, with our FV unchanged at MYR10.66 for now.

- Surprise  move.  The  announcement  was  a  surprise  given  that  Genting Singapore  had  only  cut  its  stake  in  Echo  in  Sept  2012.  We  believe Genting’s  latest  move  is  aimed  at  establishing  a  foothold  in  the Australian  gaming  market  via  Echo’s existing Sydney  operation.  Echo holds  the  sole  licence  to  operate  a  casino  in  the  harbourside  city  until 2019,  and  is  lobbying  for  an  extension  of  that  exclusivity  as  well  as expanding  its  existing  Star  Casinos.  We  note  that  Genting  has  applied for regulatory approvals to increase its stake to above 10%, but the New South Wales state's gaming authority has yet to give the green light.   

- Echo  vs  Crown?  The  stake  increase  comes  at  a  time  when  Echo  and its  casino  peer,  Crown  Ltd,  are  looking  to  strengthen  their  foothold  in Sydney  to  capitalize  on  the  increasing  number  of  tourists  from  China. Note  that  Crown  sold  its  10%  stake  in  Echo  in  May  this  year  as  its owner,  James  Packer,  is  confident  of  winning  approval  for  a  high-roller 
casino in Sydney on its own. The company has proposed a VIP gaming facility  as  part  of  its  AUD1bn  six-star  hotel  and  residential development on  Sydney's  waterfront.  Both  Crown  and  Echo  must  submit  their respective  proposals  by  21  June.  The  state  government  has  made  it clear that only one of the two will get the approval.

- NEUTRAL.  All  in,  we  are  currently  neutral  on  the  latest  development.  Should Echo secure its proposed expansion as well as the extension of its exclusive casino operator licence, we believe Genting is more likely to take  up  a  sizeable  stake  and  possibly  take  on  a  more  proactive  role  in Echo’s daily management and operations. Maintain NEUTRAL, with our FV unchanged at MYR10.66.

Source: RHB