Genting Hong Kong:
UNDER REVIEW; US$0.425/ HK$3.40;
Hit by higher expenses
Price Target : under review
•1H13 results fell short of expectations, dragged by SCL
•Strong growth at RWM and NCL to persist
•Recommendation, earnings estimates & TP under review
Below expectations. 1H13 core net profit came in at US$26m (+3% y-o-y ex-contribution from discontinued operations, -84% h-o-h due to seasonality), constituting 11-17% of our and consensus estimates. In addition to a US$10m tax charge in 1H13, SCL also fell short due to higher expenses: operating costs ex-fuel per capacity days +18% y-o-y, depreciation +33% (refurbishment & drydock for Gemini & Genting World), and promotion costs +12%.
RWM and NCL provide bright sparks. RWM’s contribution rose 31% y-o-y as gaming volume continued to expand by double-digit (daily visitation: +12%) and better VIP luck factor. NCL’s contribution doubled with maiden contribution from Norwegian Breakaway and improvement in net yield. The recent paring down of GENHK’s stake in NCL to 37.7% from 43.4% at US$29.75/share will see recognition of US$203m gains on disposal in 2H13 (proceeds of US$342m to be redeployed for working capital).
Manila at tipping point. We believe RWM should be able to hold its own against the recently opened Solaire Manila which lacks non-gaming amenities and appeals more to VIPs (via junkets). Belle’s Grande could be a strong competitor when it fully opens in Jul 2014, in our view, with Melco Crown as operator. But Manila Bay’s infrastructure is still lacking, with the new highway from airport slated for completion only in 2015 (we do not discount the possibility of delays). By 2016/17, RWM can start leveraging on its Phase 2 & 3 expansion (gaming space set to double along with hotel rooms) while Bayshore@Manila Bay will be underway. As Manila Bay ramps up, there could be potential cluster effect similar to Macau.
NCL newbuilds to drive cruiseline growth. Norwegian Getaway maiden voyage is expected to commence earlier in Feb 2014 (to be homeported in Miami) while 2 Breakaway Plus deliveries are on track for fall 2015 and spring 2017. As for SCL, the newly refurbished Superstar Gemini will start its first homeport deployment in Xiamen, China while Superstar Aquarius will commence seasonal deployment in East Malaysia in 4Q13 (SuperStar Virgo however will undergo routine drydock-refurbishment in early 2014).
Maintain Buy. Our earnings estimates and TP are under review, pending an analyst briefing later.
Publish date: 21/08/13