Share Price US$0.425
Target Price US$0.41
1H13: Asian Cruise The Weak Link
GENHK posted a 1H13 core net profit of US$23.2m (-10.2% yoy) – below expectations, as Star Asia disappointed with an operating loss of US$14.9m. Hence, we are reviewing our forecasts pending an analyst briefing today. Nevertheless, on a positive note, NCL and RWM have delivered operationally firm earnings, and GENHK’s ability to pare its NCL stake should lift its SOTP. Maintain HOLD with a target price of US$0.41. Entry price: S$0.40.
• 1H13 core net income fell 10.2% yoy to US$23.2m. Genting Hong Kong’s (GENHK) results were below expectations as Star Asia again disappointed, posting a 1H13 operating loss of US$14.9m (1H12 operating loss: US$0.8m). Recall that NCL was also a drag on earnings with (due to the one-off charges), while Travellers contributed US$26.6m (+31% yoy).
• Star Asia disappointed again. Star Asia posted a 22.9% increase in revenue to US$256.6m, driven by the deployment of s.s. Gemini, which raised capacity by 19.7%, as well as on improved occupancy rates (1H13: 73.5%; 1H12: 64.7%), and a 53% jump in on board revenues, with the commencement of on-board duty-free shopping. Gaming revenues, which account for 57% of total revenues, rose 13.9% to US$146.9m. However, it posted an operating loss of US$14.9m, dragged by higher operating expenses.
• Travellers’ contribution rose 31% yoy in 1H13, as revenue and EBITDA rose 32% and 30% yoy (in US dollar terms) respectively, amid aggressive and successful marketing programmes, despite slowing momentum in 2Q13 which saw daily gaming revenue growth moderate to about US$2.1m, from 1Q13’s stellar US$2.6m. We understand that the sequential contraction was attributed to a slowdown in April and May, ahead of the Philippines’ presidential elections which were held in May, and that things had normalised in June, with the recovery gaining momentum in July.
• NCL contribution dragged into the red by one-off expenses. NCL contributed a loss of US$44m in 1H13, dragged down by about US$180m in costs related to debt refinancing exercises and non-cash based compensation for its IPO. Excluding these items, NCL’s contribution would have been US$33.4m. Recall that NCL’s 1H13 EBITDA of US231m (+2.2% yoy) was broadly within expectations, taking into account the upcoming seasonal peak in 3Q13 and additional contribution from its newest vessel, the 4,000 berth Norwegian Breakaway, which commenced deployment in May 13. NCL’s net yield was up 3.7% yoy in 1H13 to US$177m as improved passenger ticket and on-board and other revenues (+6.7% yoy) outpaced growth in commissions, transportation and on board expenses (+5.9% yoy).
• GENHK has completed a secondary offering of 11.5m NCL shares, representing a 5.6% stake in NCL, at US$29.75/share. GENHK will pocket about US$331m from the sale of the shares (which it will channel to working capital and/or to fund new investments), and will recognise a gain of about US$203m (being the difference between the sale proceeds and the carrying value of the shares). The sale cuts GENHK’s stake in NCL to 37.7%.
• NCL recent sale enhances GENHK’s valuation, as it justifies a higher EV/EBITDA valuation in our sum-of-the-parts (SOTP) assessment. The ability to list Travellers (which owns RWM) at a lofty valuation would also lift our conservative SOTP assessment for GENHK, although we note that the listing of Travellers has been delayed. We will review our SOTP after assessing GENHK’s ability to monetise its stakes in NCL and Travellers (RHS table).
• We are reviewing our forecasts pending today’s analyst teleconference call.
• GENHK’s share price has retreated 17% from its 2013 peak, and has dipped to the low end of our fair value range, which could provide a modest trading opportunity. We maintain our HOLD call on the stock, but are reviewing our target price of US$0.41, which presently assumes a 10% holding company discount to our assessed SOTP.
Share Price Catalyst
• Listing of Travellers.
• Declaring dividends can be a modest catalyst.
Publish date: 21/08/13