Share Price US$0.415
Target Price US$0.42
Short Cruises To Profit Destinations
We expect Genting Hong Kong (GENHK) to post a seasonally stronger 2H13, as the earnings disappointment in 1H13 was largely tied to nonrecurring costs. We are lowering our 2013-15F core net profit forecasts by 3%, 7% and 7% respectively. Maintain HOLD, and we nudge up our target price to US$0.42. Entry price: US$0.40.
• GENHK’s 1H13 results conference call clarified that the bulk of the higher-than-expected operating and SG&A costs at Star Asia in 1H13 were largely one-off charges pertaining to the inaugural deployments of ss Gemini and Genting World (GWO). Also non-recurring was a US$9.6m tax charge, arising from withholding tax on dividends received from Travellers. Recall that GENHK’s 1H13 revenue grew 23% to US$257m – within expectations, but EBIT disappointed with a net operating loss of US$14.9m, on higher-than-expected costs.
• Expect a seasonally stronger 2H13. We are lowering our forecasts for Star Asia to account the lower-than-expected 1H13 results, but continue to expect a seasonally stronger 2H13 amid moderating growth in costs, as well as an improvement over 2H12, given additional contribution from ss Gemini, and assuming fewer weather disruptions (recall that 2012 had seen a record number of typhoons).
• We also look forward to a stronger 2H13 at NCL, as the seasonally strong 3Q13 (which typically accounts for >40% of full-year EBITDA) will get an added lift from contribution from Norwegian Breakaway, which commenced deployment in May 13. We expect continued earnings momentum growth at NCL, backed by its capacity expansion programme. In addition to Norwegian Breakaway, NCL is poised to take delivery of three more vessels which will raise its capacity by over 50% by 2017 (vs 2012).
• RWM ahead of competition. Management re-iterated that Resorts World Manila (RWM) has not been impacted by competition from Solaire Manila, and that Solaire’s entry has actually served to grow the Philippines’ casino gaming market. While we continue to anticipate eventual cannibalisation when Entertainment City Manila widens its appeal (as more casinos and non-gaming facilities are set up) and benefits from the planned NAIA Expressway Phase 2, we lift our outlook in view of RWM’s resilience, and in anticipation of a seasonally stronger 2H13, as continued marketing programmes support visitation and growth. We gather that management is eyeing 20,000 visitors per day by year-end (1H13: 18,600), and also note that hotel occupancy is encouraging, at over 80% (noting that Remington’s available rooms doubled to almost 700 rooms this year, from < 390 rooms last year).
• We trim our 2013-15 core net profit forecasts for GENHK by 3%, 7% and 7% respectively, as an upgrade at RWM is offset by lowered forecasts at Star Asia and adjustments to NCL’s contribution on account of GENHK’s lower effective stake in NCL.
• For Star Asia, we lower our 2013 EBITDA forecasts by 11% to US$130m to reflect the lower-than-expected EBIT 1H13. We also conservatively lower our 2014-15F EBITDA forecasts by 8% each, assuming more moderate top-line growth.
• While RWM’s 1H13’s annualised EBITDA was within our earlier forecast, we have raised our 2013F EBITDA by 15% in anticipation of a seasonally stronger 2H13. We have also raised our 2014-15 EBITDA forecasts by 11% each to impute the better (albeit still moderating) gaming revenue.
• We leave NCL’s EBITDA largely unchanged, but raise its 2013-15 core net profit forecast by 10%, 4% and 4% respectively to impute lower interest charges. However, NCL’s contribution to GENHK is reduced by almost 10% in each of 2014-15 following the sale of 11.5m shares on 14 Aug 13, which cuts GENHK’s effective stake in NCL to 37.7% (from 43.4% previously).
• Maintain HOLD while nudging up our target price to US$0.42 (previously US$0.41). While we maintain our HOLD call in view of challenges at Star Asia and (in the future) RWM, and unclear status of its bid to raise its stake in Australian listed Echo Entertainment, GENHK’s share price weakness presents an opportunity to accumulate the shares ahead of potential re-rating catalysts such as the eventual listing of Travellers. Our revised RNAV values Star Asia and RWM at 9x 2013F EV/EBITDA, and NCL at 9.5x 2014F EBITDA (see RHS), but our SOTP target price of US$0.42 assumes a higher 20% discount to our revised RNAV/share of US$0.53, to conservatively take into account current currency concerns in the region.
Share Price Catalyst
• Listing of Travellers Group.
• Declaring dividends can be a modest catalyst.
Publish date: 22/08/13