Genting Hong Kong
Pivot to Asia continues
▊ We believe that GENHK continues to realign its capital and focus back to Asia. Following the second selldown of its Norwegian Cruise Line (NCL) stake in Dec 2013, GENHK is now placing an order for a second €697.2m mega-ship. The first mega-ship will effectively be a floating integrated resort in southern China, while the second will likely be positioned in ASEAN. There is no change to our FY13-15 EPS as these strategic cruise assets will only begin their contribution in FY17 onwards. Our target price, based on a 20% discount to RNAV, remains unchanged. Although the capital unlocked from the sale of NCL shares that will be deployed into value-creating assets is a key catalyst, we choose not to factor it in at this stage. Our Add rating is maintained.
Ordering second mega-ship. GENHK is ordering its second mega-cruise ship at a cost of €697.2m. The deal is due to be finalised by 14 Apr 2014 once the financing and shareholder approval are secured. This is the second mega-ship order after the first €707.2m order in Oct 2013. These ships can carry up to 4,500 passengers and are effectively floating integrated resorts. Payment will be backloaded, with 80% of the contract price to be paid when the vessel is delivered on 26 Oct 2017. While the first ship is expected to be stationed in the Macau and southern China geographic basin, the second is expected to ply an ASEAN route around Singapore, Malaysia and Thailand.
What We Think
Realigning capital from US to Asia. The first mega-ship order in Oct 2013 was placed after the successful secondary NCL placement in Aug 2013. GENHK reaped US$331m in placement proceeds from lowering its stake from 43.4% to 37.5%. The second ship order comes after another secondary placement of NCL shares in Dec 2013. The placement proceeds amounted to US$407m in cash and pared down GENHK’s stake in NCL from 37.5% to 31.4%. It is clear to us that GENHK is relocating capital from its successful cruise investment in NCL and deploying it into strategic cruise assets in Asia. To underpin long-term growth. We believe that GENHK’s strategy of deploying mega-ships in Asia is timely. Although the capital cost is high, there will be significant operating leverage and no gaming taxes. We estimate that net gearing will be manageable at 32% in FY17.
What You Should Do
We continue to favour GENHK as it unlocks RNAV.
Publish date: 09/02/14