Genting Hong Kong
From Macau to the Philippines
We remain positive on GENHK as a RNAV value play despite negative newsflow coming from Macau and the Philippines. GENHK could be forking out capital to develop its Macau landbank well before securing any gaming facilities. In the meantime, Resorts World Manila’s (RWM) 4Q13 GGR was weak and we cut our EPS by 3-11% accordingly.
Nevertheless, we remain positive on the Philippines which should provide a key catalyst. Our target price is revised downwards based on a 20% discount to GENHK’s RNAV. We maintain our Add recommendation.
RWM’s 4Q13 GGR weak. We cut our 2013 earnings for Travellers by 8.5% on the back of weak 4Q13 GGR numbers for RWM. 4Q13 is a peak season, accounting for as much as 35% of full-year net profits. Dec alone can account for up to 15% of full-year earnings and we believe the VIP business was not as robust as expected following the post-typhoon sentiment although Dec GGR apparently came in 40% higher than direct competitor Solaire, at US$65m.
Building boutique hotel in Macau. GENHK has also confirmed reports that it has applied to develop a low-rise boutique hotel on its reclaimed land opposite the Grand Lisboa on the Macau Peninsula. According to the news reports, the hotel will be called Resorts World Macau and will offer “hundreds” of rooms and shopping facilities with a total development area of 87,000 sf.
What We Think
Adjusting for Travellers and weaker peso. The impact of our earnings cuts in Travellers on GENHK’s bottom line is amplified by a weaker peso against the US$ (4% depreciation) in 4Q13. We remain positive on Travellers and the growth of the Philippine gaming market. We believe more market depth can be realised while the opening of more integrated resorts by the likes of Melco Crown by the end of the year should broaden the business.
Not optimistic on gaming prospects in Macau right now. We believe GENHK is positioning its Macau property for eventual gaming possibilities. Immediate prospects for a service agreement are dim, in our view, because of the table cap, but the possibility of a new licence exists after 2020.
What You Should Do
Still a compelling RNAV play. The break-up value of GENHK implies that exposure to Travellers and the Philippines still comes for free. Current share price levels are a buying opportunity.
Publish date: 17/01/14