Macquarie Equities Research recently initiated coverage on Genting HK and described the group as an “under-covered yet liquid stock that is exposed to the Asian gaming theme and a growing US tourism market”. The firm has an “outperform” rating and a HK$4.70 (RM1.84) target price for Genting HK, which is a 25% premium over its closing price of HK$3.77 yesterday.
Formerly known as Star Cruises Ltd, Genting HK had not attracted much attention over the past few years, even after it diversified from cruise line operations to make its first foray onto land-based attractions with the opening of Resorts World Manila (RWM) in August 2009. The RWM project was undertaken via a joint partnership with Alliance Global Group under Travellers International.
In comparison, its sister company Genting Singapore plc garnered a flood of investor interest with the opening of Resorts World Sentosa (RWS) last year, while Genting Malaysia Bhd regained favour with investors after winning a 30-year contract to redevelop the Aqueduct Racetrack in Ozone Park, New York in exchange for a gaming concession there.
Macquarie says things are starting to look up in Genting HK, which has the Lim family and Genting Malaysia as major shareholders (with 57.49% and 18.44% stakes, respectively, according to Bloomberg data).
With operational improvements in both its land and sea-based leisure businesses, the Hong Kong-listed outfit managed a turnaround last year, with a net profit of US$16.1 million (RM49 million) for the first six months of 2010, compared with a loss of US$57.2 million in the same period a year ago. The group’s revenue in the first half of 2010 rose by 5.1% to US$184.7 million from the previous comparable period.
Resorts World Manila
Companies listed in Hong Kong are only required to furnish their results every six months, but according to Macquarie, RWM delivered robust results for the nine months of last year, with US$233 million in revenue, earnings before interest, taxes, depreciation and amortisation (Ebitda) of US$75 million and profit after tax of US$56 million. The research house expects this year to be an even stronger one from RWM.
“In its first full year of operations [in 2010], RWM is expected to contribute handsomely to Genting HK’s profits at US$46 million. This should almost double to US$89 million in 2011, in our view,” the research house says.
Of the four gaming licensees approved by the Philippine Amusement and Gaming Corp, RWM was the first casino to start operations in the Phillippines when it opened in August 2009. It is also the first-ever integrated resort-casino in the country. The other three concessionaires that were awarded a provisional gaming licence have yet to start operations.
Macquarie says it expects RWM to achieve a 2% market share of the Asian VIP market which was estimated to be at about US$11 billion in 2010. The research house says that, with RWM’s location, it could ride on its proximity with major markets like Hong Kong and China, tap into Star Cruises’ network of two million customers and have the potential to capture South Korean and Japanese VIP revenue with Manila’s vibrant nightlife.
“Of the US$530 million that we expect in gaming revenues from RWM in 2011, a 50% VIP revenue share implies only a 2% market share of the US$11 billion Asian VIP market. The regional VIP market is determined by location, tax rates and attractiveness of destination, in our view,” Macquarie says.
The research house also says RWS could capture some 50% of the expanded Manila market, on top of attracting significant regional VIP business because existing casinos are located in relatively poor neighbourhoods with poor infrastructure, making access difficult.
It adds that RWM is the largest casino yet in Manila in terms of tables, with 330 in total forecast for 2011. The total investment for RWM stands at US$1.5 billion with 30,000 sq m of gaming floor, three hotels, a shopping mall, and a 1,200-seat performing-arts theatre. Genting HK entered the Philippine gaming industry by acquiring a 50% stake in Travellers International for US$335 million in 2008.
Cruise line operations
In recent months, Genting HK has been reported to be bullish about the prospects for its cruise line and gaming segments. The company announced the building of two additional cruise liners worth US$850 million each. It now has a total of 18 ships under its Star Cruises and Norwegian Cruise Line brands.
Interestingly, NCL, the parent company of Norwegian Cruise Line, filed a registration statement with the US Securities and Exchange Commission in October last year for the listing of its ordinary shares. NCL aims to raise up to US$250 million with the IPO. Private equity firms Apollo Management and TPG Capital hold 37.5% and 12.5% stakes, respectively, in NCL.
Riding on improving leisure-travel trends, along with a low-supply outlook in the near term from North American cruise brands, NCL also announced it will be spending US$1.7 billion on two new 4,000-passenger ships to bring its total to 13 ships in the next few years.
NCL managed to steer a course to a post-recession rebound to register Ebitda of US$184.1 million for 3Q2010 ended Sept 30, a 21.4% gain from US$151.6 million a year ago.
Macquarie said in a report last week that NCL was one of the top five cruise operators in the North America and could be the third publicly listed following Carnival Corp and Royal Caribbean Cruises Ltd.
The research house says that NCL currently has an 8% market share in the region and a fleet of 11 ships with a capacity of 26,346 berths.
Macquarie points out that the North American cruise sector witnessed a robust 6.9% compound annual growth rate in passenger traffic from 1990 to 2009, aided by equal growth in the number of berths. It said the cruise industry rode out the economic storm in 2008 and 2009 with “remarkable resiliency, skill and success,” and was still growing by 5% in each year.
“We believe the economic recovery in the US should also help the North American cruise industry in general. Following a temporary soft patch in economic activity in the US in 2H10, US growth is set to accelerate in 2011 in our view,” said the research house. It forecasts US GDP growth to reach 3.5% in 2011 versus 1.7% in 2Q10 and 2.5% in 3Q10.
With the Norwegian Epic liner entering its current fleet in July 2010, NCL had been able to increase overall capacity of 20% and might possibly add 20% or about US$69 million to the group’s Ebitda in FY2011, which would then spearhead further growth in the next five years on higher occupancy and ticket revenues, Macquarie says.
It notes that NCL had arranged financing from a bank syndicate for the two new 4,000-berth ships ordered from Meyer Werft of Germany. The liners expected to be delivered in 2013/14.
It says NCL brought its debt levels down in 2008 and 2009 following the entry of Apollo and TPG but the US$1.3 billion purchase of Norwegian Epic means debt levels increased last year to US$3.4 billion.
However, the research house thinks that, given Ebitda levels could remain strong at US$500 million with a capital expenditure requirement of only around US$100 million annually for next three years, NCL could generate free cash flow of US$400 million annually going forward and should be able to pay its debt gradually.
“We expect NCL’s net debt-to-Ebitda level to fall to 5.5 times by 2013 from 24.8 times in 2008, a significant improvement,” Macquarie adds.
Genting HK is listed on the Hong Kong Stock Exchange and the Singapore Exchange. At the Hong Kong exchange yesterday, the stock rose two cents to close at HK$3.77, on turnover of 65,000 shares. At its current price, Genting HK has a market capitalisation of HK$29.29 billion (RM11.44 billion), price-to-earnings ratio of 22.5 times FY2011 estimated earnings of US$167 million and 18.9 times FY2012 estimated earnings of US$199 million.
The counter posted a 52-week high of HK$4.03 on Sept 20, 2010 and a low of HK$1.15 on May 28, 2010. - by Yong Min Wei, theedgemalaysia.com
No comments:
Post a Comment