Genting Hong Kong
OUTPERFORM
US$0.42/HK$3.20 @06/04/11
Target: US$0.48/HK$3.77
12-mth price range US$0.54/US$0.16
Major shareholders
Lim Kok Thay 57.5%
Resorts World Limited 18.4%

From sea to shore - gaming is paying off

• Initiate with OUTPERFORM. We like Genting Hong Kong’s land-based growth story via Resorts World Manila (RWM) which has set a new standard of product and service quality in the Philippines gaming sector. The cruise business has also turned around. The company’s expansion from the cruise business to the casino industry amid the regional gaming boom looks set to pay off. We begin coverage with an OUTPERFORM call and end-CY11 SOP target price of US$0.48, which is derived from a blended CY12 EV/EBITDA of 12x, a 20% discount to regional casino rivals’ 14.6x target. Potential catalysts are i) better-than-expected operational data from RWM, ii) continuous margin improvement for NCL, iii) more transparent dividend policies for NCL and Travellers, and iv) opportunities to enter other jurisdictions.

• Unlocking potential of Philippines gaming sector. With RWM providing a new platform for casino gaming entertainment in the Philippines, this young but promising sector could pick up its pace of expansion. Fuelled by deeper penetration into the local mass market and the influx of overseas high rollers, the depth of the Philippines gaming market could surprise even more on the upside than Macau. RWM is ideally placed to grab a bigger slice of the enlarged pie with its differentiated product offerings and expect the casino to post higher earnings growth than its Macau peers.

• Discount to regional peers should narrow. On an EV/EBITDA basis, the market is still valuing Genting Hong Kong at a 24% discount to its regional casino rivals’ current average of 15x as the cruise business continues to dominate earnings. As contributions from RWM are expected to become the major driver from FY11 onwards, the discount could be narrowed.

Background
Expanding from sea to land. Incorporated in Nov 93, Genting Hong Kong, formerly known as Star Cruises Limited, is a leisure, entertainment, hospitality and gaming enterprise with core operations in both sea-based passenger cruise ships and landbased integrated resorts. A pioneer in its own right, the company has made a name for itself by taking the initiative to develop the Asia-Pacific region as an international cruise destination for its Star Cruises fleet. Genting Hong Kong acquired Norwegian Cruise Line (NCL) in 2000 to extend its reach into the western cruise market. Building on the cruise foundation and leveraging the Genting brand name, the company successfully expanded its footprint into the more coveted land-based casino gaming business in Manila in 2009. Genting Hong Kong has been listed on the Hong Kong Stock Exchange since Nov 2000 and is traded on the Singapore Exchange with the ticker symbol GENHK SP.

Star Cruises – leading cruise line in Asia-Pacific. Under the Star Cruises brand, Genting Hong Kong currently operates a fleet of four ships that sail to destinations such as Malaysia, Singapore, Taiwan and Hong Kong. Besides offering a wide range of entertainment activities and dining options on board, Star Cruises also provides shore excursions for cruisers to experience diverse cultures at various port cities and islands. Revenue from the gambling facilities offered by its operational ships, which currently include 99 VIP tables, 196 grind tables and 433 slot machines, makes up almost 60% of Genting Hong Kong’s topline. Despite intensifying competition from land-based casinos in Malaysia, Singapore and Macau, Star Cruises has managed to keep its occupancy rate above 80% throughout the years. Headquartered in Hong Kong, Star Cruises has sales offices in over 20 countries globally

Norwegian Cruise Line (NCL) – expansion into western cruise market. NCL is one of the leading cruise ship operators in the world, with routes focusing on North America, Caribbean, Europe and South America. Constantly innovating, NCL has won multiple awards in recognition of its operational excellence. It currently operates 11 cruise ships with over 26,000 berths or 9% of the overall cruise capacity in North America. Through Star Cruises and NCL, Genting Hong Kong ranks as the third largest cruise operator in the world, with an aggregate fleet of 18 ships cruising to over 200 destinations. Genting Hong Kong considers its 50% equity holding in NCL as an investment and accounts for it as a jointly controlled entity. The remaining 50% interest is held by two private equity firms, Apollo (37.5%) and TPG (12.5%). NCL has filed a registration statement with the SEC for a proposed IPO of its ordinary shares to raise up to US$250m to pay down senior debt and to fund future capital expenditure.

Resorts World Manila (RWM) – the new darling. Located at the 25ha Newport City in Manila, which is a 10-minute drive from Ninoy Aquino International Airport, RWM is Genting HK’s first foray into a land-based integrated-resort attraction. Opened to the gambling community and business/leisure travellers in Aug 09, the project under Travellers International is a 50:50 partnership with Alliance Global Group (AGG), one of the leading consumer conglomerates in the Philippines. Travellers holds one of the only four gaming licences awarded by Philippine Amusement and Gaming Corporation (Pagcor) and is the first mover in establishing an integrated resort-style casino in the Philippines. RWM’s 3-storey casino gaming floors offer 155 VIP tables, 138 grind tables and 1,216 slot machines. Leveraging the Genting brand name, RWM is able to tap the Genting Group’s network of over 3m existing customers and established relationships with junket operators to bring in overseas clients. Contributions from Travellers are reported as share of profit of jointly controlled entity in Genting Hong Kong’s books.

Company outlook
Star Cruises – stable topline but margin under pressure
Largely a mature business. Although Star Cruises has been the foundation for Genting HK, we believe that the Asian cruise industry is already in its maturity phase. This is evident from the company’s disposals of three ships in 2007-09 and the laying up of another three. The flourishing of land-based casinos in Asia, particularly after the recovery of Macau and the rise of the two IRs in Singapore, has prompted Genting HK to reposition the previously gaming-centric Star Cruises as a more family-oriented cruise operator. Although we do not expect to see significant growth in Star Cruises’s on-board gaming revenue, a modest 3.5% growth in its topline, driven mainly by higher fares, could be conservatively assumed. In FY10, on-board gaming revenue from Star Cruises chipped in around 56% of Genting Hong Kong’s reported topline, down from 58% in FY09. Passenger fares contributed another 29%, up from 25% in FY09.

Fuel expenses might nullify margin expansion efforts. In FY10, Genting Hong Kong continued to expand its EBITDA margin as a result of effective cost-cutting initiatives. Excluding fuel expenses, total operating expenses dropped by 1.9% from the FY09 level. However, escalating fuel prices might pressure the cruise operator’s EBITDA margin in 2011 in view of the Middle East turbulence which has pushed up oil prices. In fact, Star Cruises’ average fuel cost has already surged 35% from US$367 per metric ton in FY09 to US$494 per metric ton in FY10. If the warfare prolongs, Genting Hong Kong’s 23% EBITDA margin might not be sustainable although the company has a 6-month hedging on 60% of its oil consumption. Taking into consideration our in-house expectations of unrelenting upward oil price pressure, we project an easing of the EBITDA margin to 20-21% over the next three years.

NCL – riding the uptrend with more capacity
Western cruise market still under-penetrated. In contrast to the mature Asian cruise market, we believe that there are abundant opportunities for growth in the west. According to data from Cruise Lines International Association (CLIA), although the industry has recorded an average annual passenger growth rate of 7.2% since 1990, penetration is still poor as only around 20% of the US population has ever cruised and this represents only 10% of the North American vacation market. The underpenetration argument is even stronger for the European market as only 1% of Europeans went on a cruise in 2008, compared with 3.1% of the population in North America. As it controls 10% of total capacity of North American cruise operators (3rd largest after Carnival and Royal Caribbean) and differentiates itself from the traditionally more structured cruise alternative with its “Freestyle Cruising” concept, NCL is set to cruise on the continuous growth of the western cruise market and hold on to its 10% market share.

Aggressively adding capacity. After welcoming in Jun 10 Norwegian Epic which is its largest vessel to date, NCL will further expand its passenger capacity when it takes delivery of two 4,000-berth ships in 2Q13 and 2Q14. Although it is not the only cruise operator which has ordered new ships, NCL is undoubtedly one of the most aggressive as it will contribute 17% of total new supply over the next three years. Sector-wise, the total increase in capacity for major western cruise brands is 4.3% in 2012 and 4% in 2013. These expansion efforts provide strong indication that NCL and its competitors are optimistic about the outlook for the western cruise industry. Bolstered by improving leisure travel trends after the global financial crisis and a relatively low supply outlook in the near term, NCL should be able to maintain its 110% occupancy rate in 2011-2013 and boost its revenue thereafter with the delivery of the two new ships. In view of full-year contributions from Norwegian Epic from 2011 onwards, we believe that annual topline growth of 11% for FY11-13 is achievable.

Feeling less the pinch of escalating oil price. Despite topline growth of only 9% in FY10, NCL racked up EBITDA growth of 24% on the back of cost-reduction exercises. This marked its fourth consecutive year of double-digit growth. Facing the same oil price predicament as Star Cruises, NCL is set to post lower EBITDA growth in FY11- 13 but should continue to see EBITDA margin expansion, albeit at a slower pace. We are less concerned about the EBITDA margin squeeze for NCL than for Star Cruises as i) fuel expenses constituted 15% of total operating costs for NCL vs. 27% for Star Cruises, and ii) we think that there is still room for margin expansion for NCL on the back of higher operating efficiency driven by stronger topline growth.

NCL eying IPO in 2011. Despite having filed the latest registration statement with the Securities and Exchange Commission (SEC) in Feb 2011, the company is contemplating a better timeframe to list its 50% jointly controlled NCL on the US stockmarket as current oil price inflation is weighing down valuations. Although management sees a moderately high possibility of accomplishing the US$250m IPO this year, we think that a listing in 2012 is more probable as oil price is unlikely to recede to a more reasonable level in the shorter term.

RWM – game changer in the Philippines
Philippines gaming sector – potential waiting to be unlocked. Before RWM was established, the market had been monopolised by Pagcor’s casinos for almost three decades. Due to the lack of competition, the incumbents had no incentive to improve the conditions and quality of services in the existing casinos. This dragged down the pace of expansion of the sector. The entry of RWM changed the landscape entirely. By offering a whole new experience of leisure, entertainment and hospitality, RWM has not only managed to grab significant market share from the existing players, it has also successfully created a discrete market segment which previously resisted the idea of casino gaming. Compared to the old and dingy Pagcor casinos, RWM’s integrated resort style property is a Triton among the minnows and plays a pivotal role in unlocking the potential of the Philippines casino gaming sector. Currently, Pagcor is still the largest casino operator in the nation with 13 casinos, 28 satellite casinos, 25 exclusive VIP clubs and four arcades.

Propensity to gamble is high in the Philippines. It is estimated that the total size of the Philippines gaming market was approximately US$3.9bn in 2010, split equally between regulated and shadow gaming. The propensity to gamble is undoubtedly high, as indicated by the locals’ regular and feverish engagement in gaming activities including cock fighting, lottery betting, sports betting and of course, casino gambling. Taking our cue from Pagcor’s estimated FY10 gross gaming revenue of US$720m, and assuming that Pagcor controls 60% of the casino gaming market, we estimate the market size for casinos in the Philippines to be approximately US$1.2bn last year, which is about 5% the size of the Macau market and a quarter of the size of the Singapore market.

RWM to ride on sector growth and market share expansion. We are strong believer of the supply-driven model of the gaming sector. With RWM providing a new platform for casino gaming entertainment, we believe that the young but promising sector could pick up its pace of expansion. After expanding 38% in 2010 with the help of the novelty effect of RWM, the Philippines casino gaming sector is expected to notch up growth of 25% p.a. over the next three years, fuelled by i) deeper penetration into the local mass market, and ii) increased influx of overseas high rollers on the back of more established junket operations. With its differentiated product offerings, RWM is undoubtedly well-placed to grab a bigger slice of the enlarged pie. We expect RWM to increase its share of gaming revenue from 30% in 2010 to 35% in 2011 and 40% from 2012 onwards. In terms of revenue mix, we expect a 50:50 spilt between VIP and mass market from FY11 onwards, in line with management’s guidance. In FY10, gaming revenue tilted more heavily to the mass market segment with a 55:45 split.

Not relying on mainland Chinese visitors. By exploiting a more diversified customer base, RWM is not competing with Macau casinos for China/Hong Kong punters. According to management, visitors from S. Korea, Taiwan and Southeast Asia currently rank above China/Hong Kong in terms of gaming revenue sources from abroad. This structure of reliance is not surprising as Koreans have, for historical and cultural reasons, picked the Philippines as one of their top tourism destination choices in the past. RWM is currently still relying on the local higher rollers and mass market for 60-70% of its revenue. However, it is engaging some 130 junket operators to bring in overseas high rollers, leading us to believe that this segment should see sizeable growth. Expansion in this segment could be further propelled by more aggressive tourism promotional efforts by the Philippines government, which has identified the tourism industry as an important economic growth driver. We have already seen a clear indication of the underlying potential of the overseas VIPs after RWM turned in a fourfold yoy expansion of this segment in 1Q11.

RWM to be the major earnings driver. The company’s strategic move to enter the land-based casino industry through a joint venture with AGG to obtain a gaming licence in the Philippines is timely in meeting the burgeoning regional gaming demand. It might be premature to put the Philippines and Macau gaming sectors side by side but we do see similarities between the two and think that the depth of the Philippines market might surprise even more on the upside. In FY10, RWM achieved an EBITDA margin of 29%, higher than the 24% posted by Sands China, Macau’s EBITDA leader. We think that the lower gaming tax regime and lower wage environment in the Philippines are factors contributing to the high margin realised by RWM. As RWM ramps up further with substantial increases in its topline, we should see a higher level of operating leverage. We project a 30% EBITDA margin for RWM in FY11 and a sustainable 35% beyond that year.

Pagcor City – a long-haul development project. Bagong Nayong Pilipino Entertainment City Manila or simply known as Pagcor City is Pagcor’s redevelopment of 800ha of reclaimed land in the Manila Bayshore area into the Philippines’ own miniature version of Las Vegas. With the obvious aim of harnessing the tourism industry as the nation’s main catalyst for economic growth, the fully-integrated Pagcor City will feature high-rise luxury hotels with gaming amenities, amusement parks, racetracks, commercial centres and MICE facilities when completed. Four integrated resort projects have been qualified according to the terms of reference since the project was proposed back in 2008. However, due to i) the global financial crisis, ii) delayed improvements of local infrastructure, and iii) prolonged transitional period of the new Pagcor chairman, the schedule to commence full-scale construction was postponed until recently when a couple of operators with provisional licences to build started structural works at the site. Besides Travellers, Pagcor has awarded gaming licences to operate integrated resorts in Entertainment City Manila to three other companies – Belle Corp and Bloomberry from the Philippines and Azure from Japan.

No substantial plan yet to build in Manila Bayshore. As one of the four operators with provisional licences to build in Pagcor City, Travellers owns a sizeable 30.5ha plot in the Manila Bayshore area. Although pre-development work has started, Travellers has no immediate intention to scale up its construction efforts at the site. We believe that Travellers is focusing most of its resources on ramping up business at RWM and is assuming a second-mover strategy in its Pagcor City venture. Having RWM as its cash generator at the current juncture, management is not concerned about cannibalisation from the new casinos and holds the view that the market could be enlarged with the entry of new players, similar to the expansionary period experienced by Macau since 2006. As the other operators are likely to take another 2- 3 years to complete construction, we think that RWM could enjoy considerable gaming revenue growth without having to worry about competition.

Opportunities to enter other gaming jurisdictions. The expansion of Genting Hong Kong’s land-based casino footprint might not just end in Manila Bayshore. As gaming liberalisation efforts pick up pace in other jurisdictions, particularly Taiwan and Sri Lanka, we see opportunities for Genting Hong Kong to extend its reach beyond the Philippines. Following in the footsteps of Singapore, the Tourism Bureau of Taiwan has accelerated the liberalisation of the gaming sector by recently drafting a casino legislative paper, which will be briefed in offshore islands such as Jinmen, Mazhu and Penghu in the coming months and tabled for discussion and passing in the Taiwan National Legislative Council by end-11. According to the proposal, Taiwan will issue at most two 30-year gaming licences within the first 10 years through a bidding process.

Chances of winning the bid will largely depend on the scale of investment committed by casino operators as well as the operators’ experience in running integrated resorts. The gaming tax is likely to be in the range of 12-15%. The expected timeline for the bidding is next year and the integrated resorts could be operational as early as 2013.

Taiwan to be the next entrenchment? The interested offshore islands will hold referendums for the residents on the establishment of the casinos. While we think that Genting Hong Kong stands a high chance of clinching a gaming licence in Taiwan on the back of i) its proven experience in land-based casinos, ii) the prominence of the Genting brand in Asia, iii) familiarity with the nation’s gaming market, thanks to its Taiwan cruise routes, we are not overly excited as the liberalisation efforts are still in an early phase and there are still political uncertainties. Having said that, any positive progress and newsflow on Genting Hong Kong’s endeavour in Taiwan are likely to drive up its valuation which has yet to price in the Taiwanese prospects.

SWOT analysis
Strengths
. RWM is the first integrated-resort style casino in the Philippines
• Able to wrest gaming revenue market share from incumbents with differentiated product offerings
• Able to tap into Genting’s network of 3m customers
• Lower gaming tax and labour costs in the Philippines compared with other countries
• Not competing with Macau casinos for China/Hong Kong visitors
• NCL continues to expand passenger capacity to meet growing cruise demand in North America/Europe


Weaknesses
• Star Cruises unable to fight off competition from regional land-based casinos to grow its on-board gaming revenue more significantly
• Star Cruises and NCL might not be able to pass through higher fuel expenses to cruisers
• Financial leverage of NCL expected to remain at the higher range
• No substantiated development plan yet for the piece of land in Pagcor City
• No substantiated development plan yet for the land in Pagcor City

Opportunities
• Asian and western cruise markets could grow faster than expected
• Able to penetrate deeper into the local mass market with more marketing and promotional efforts
• Manage to capture more overseas high rollers with more established arrangements with junket operators
• Opportunities to enter other jurisdictions such as Taiwan and Sri Lanka if gaming liberalisation efforts pick-up pace
• Travellers well-positioned for future financing with low financial leverage
• IPO for NCL

Threats
• Prolonged geopolitical tensions in the Middle East could further disrupt oil supply and drive fuel costs higher
• Oil price levels might be inflated by rising production costs and demand supply imbalances
• Unexpected political unrest in the Philippines might negatively impact the tourism industry
• Unexpected tightening measures to control the pace of expansion of the casino gaming sector could curtail revenue growth

Risks
Interest rate hike would have adverse impact on bottomline. Besides oil price inflation, the major concern we have in relation to Genting Hong Kong and NCL is the possibility of interest rate hikes which would have a detrimental impact on the companies’ earnings. This is particularly critical for NCL, which took on more debt in FY10 for the purchase of a new cruise ship. As at end-FY10, 33% of NCL’s debt was fixed-rate and 67% was variable. We estimate that a 1% pt increase in the LIBOR rate would lift its annual interest expense by US$21m, leading to a 20% reduction in its bottomline. This would reduce Genting Hong Kong’s share of profits accordingly.

Tourism industry in the Philippines might fail to boom. Despite posting a record high of 3.5m tourist arrivals in 2010, the Philippines tourism sector might not be able to expand strongly due to safety concerns and underdeveloped infrastructure. Notwithstanding an improving regulatory environment, we think that the Philippines government still lags behind its Singapore and Macau counterparts in terms of supervising, regulating and promoting the tourism and gaming sectors. Although RWM depends largely on local visitors and a number of overseas high rollers, gaming revenue from tourists should not be overlooked. RWM will supply a total of 1,200 hotel rooms to the leisure/business travellers when its Remington Hotel is operational in 3Q11. If it is unable to fill up the rooms, it could mean that the lacklustre tourism sector is dragging down RWM’s businesses. In addition, any adverse political decision against Travellers could have a negative impact on RWM’s position in the Philippines gaming space.

Financials
Recap of FY10 results. After stripping out some US$25m one-off gains from the disposal of assets, Genting Hong Kong turned in FY10 core net earnings of US$42.6m, 51% below consensus estimate of US$86m profit. The major discrepancy came from lower-than-expected contributions from its jointly-controlled entities. Consensus expected the total share of profit from both NCL and Travellers to be US$75m but that figure came in short at US$46m. With Star Cruises expected to provide relatively stable profits, Genting Hong Kong will count on contributions from NCL and Travellers to be the main earnings growth drivers. No dividend policy is in place at the current juncture but we expect 40% profit sharing from NCL and 33% from Travellers until further guidance is provided by management. It is also worth mentioning that the company reclassified Travellers from an associate to a jointly controlled entity in 2H10.

Manageable financial leverage for Genting HK and Travellers. Through a series of deleveraging exercises since 2007, Genting HK has brought down its net gearing from 174% in FY07 to 17% in FY10. Due to the lack of expansion plans for its Star Cruises fleet, we think that capital expenditure will be minimal and the low gearing ratio should be sustainable. At the jointly controlled entity level, Travellers has already spent US$500m to develop RWM to date and management is budgeting another US$1bn for the development of its Pagcor City project over the next few years. With only US$78m net debt and 24% net gearing ratio at end-FY10, Travellers is well placed for future financing to expand its footprint in the Philippines hospitality and gaming sector.

NCL to assume more debt. Nevertheless, we expect NCL’s gearing ratio to remain relatively high over the next few years given the high amount of funds needed to fulfil ship purchase commitments over the next few years. NCL has ordered two new ships, each with a passenger capacity of 4,000 berths and costing US$1.6bn in total. According to the agreement, NCL will pay 99% of the contractual price upon delivery in 2Q13 and 2Q14, with 90% of the payment financed through export credit financing by a syndicate of banks. According to anticipated capital expenditure, we expect NCL to increase its debt to approximately US$4bn in FY13 from US$3.2bn in FY10. Having
said that, we are not overly concerned about its liquidity and seemingly stretched finances as increased cash inflow from operating activities should keep its gearing ratio in check at the 150-165% range, even without the capital replenishment from the IPO.

Valuation and recommendation
Bullish on Philippines gaming prospects. We like Genting Hong Kong’s land-based growth story via RWM which has set a new standard of product and service quality in the Philippines gaming sector. Even its underlying cruise business has turned around. Leveraging its cruise foundation and the Genting brand name, the company has made a timely entry into the casino gaming sector amid a regional gaming boom. This bet looks set to pay off. We regard RWM as truly a game changer in the Philippines gaming market as it offers a distinct leisure and entertainment experience for the locals. More aggressive expansion into the higher-stakes VIP segment seems to be in place as well. We continue to be a strong believer of the supply-driven model of the gaming sector and think that RWM is ideally placed to grab a bigger slice of the enlarged pie with its differentiated product. Contributions from RWM are expected to be the major earnings driver for Genting Hong Kong from here on.

Trading at a discount to regional peers. On an EV/EBITDA basis, the market is still valuing Genting Hong Kong at a 24% discount to its regional casino rivals’ current average of 15x given its dominant cruise earnings which are more susceptible to fluctuations in economic prospects and oil prices. We value the company’s three business lines separately. Travellers should be valued at a premium over regional pure casino plays in view of i) RWM’s higher revenue and EBITDA growth, ii) higher EBITDA margin, and iii) less competition in the Philippines gaming space. We value Travellers at 17.5x CY12 EV/EBITDA, a 20% premium over its casino peers’ 14.6x. As for its NCL venture, we attach a CY12 EV/EBITDA of 10x, a 10% premium over its cruise peers’ current average of 9x as the western cruise business is still on an uptrend. But we are less upbeat on its Star Cruises operation and apply a CY12 EV/EBITDA of 9x, in line with its cruise peers’ current average. This leads to a blended CY12 EV/EBITDA of 12x.

Starting coverage with OUTPERFORM call. Our end-CY11 SOP-based target price of US$0.48 (HK$3.77) suggests 15-18% upside from the current price level. In view of the potential re-rating catalysts of i) better-than-expected operational data from RWM, ii) continuous margin improvements from NCL, iii) more transparent dividend policies for NCL and Travellers, and iv) opportunities to enter other jurisdictions as gaming liberalisation efforts pick up pace, we initiate coverage on Genting Hong Kong with an OUTPERFORM call.



Source/转 贴 /Extract/: CIMB Research
Publish date:07/04/11

Genting Hong Kong
Price US$0.38
Target US$0.54
Time to emerge from the shadows
Event
 Genting Hong Kong’s (GENHK) share price has retreated recently in tandem with that of Genting Singapore (GENS). Though the duo’s share prices have been highly correlated, we believe GENHK offers a different growth profile and should be looked at independently. The fall in share price has made GENHK attractive, offering a good buying opportunity. Reiterate BUY with target price unchanged at US$0.54.

Our View
 According to International Financial Review Asia, Travellers International, the operator of Resorts World Manila (RWM), could be planning an initial public offering. While GENHK did not comment on this piece of news, we see it as a positive development that could unlock the hidden value of Travellers. A public listing would also provide more clarity on the operating data of its casino business.

 Norwegian Cruise Line (NCL), on the other hand, could push back its listing until next year, in our opinion, given the current weak market conditions. We do not think this is a negative as it is possible that NCL could receive a higher valuation if supported by improved operating figures coupled with potentially better equity market conditions next year.

 NCL’s 1Q11 results, released in May, showed a 37.5% YoY increase in adjusted EBITDA to US$81.9m, in line with our expectation. Despite a 6.6% rise in fuel price, the cruise operator registered a 1.3% YoY drop in net cruise cost per capacity day, owing to pricing discipline, cost control and economies of scale. This indicates that the cruise business is indeed improving. However, if oil prices continue to head north, NCL would inevitably feel some margin pressure.

Action & Recommendation
GENHK is invariably associated with GENS but we think it is time it walks out from that shadow. We like GENHK for the potential from its gaming operations in Manila, as well as its recovering cruise business. The current share price implies a FY11F adjusted EV/EBITDA of only 10.1x. Reiterate BUY with target price maintained at US$0.54 based on SOTP.





Source/转 贴 /Extract/: Kim Eng Research
Publish date:13/06/11