HAVE  YOU  GOT  YOUR 

CRUISE  TICKET

Genting HK own NCL...

NCL's net loss in 2010 included a non-recurring charge of $33.1 million related to foreign exchange contracts associated with the financing of Norwegian Epic.

Excluding this non-recurring charge  [paper lOss ?], net income for the period was $18.2 million.

So genting hk profit should be more if exclude the $33.1 mil

US11.3 Million  +  US33.1 Million  =  US44.4 Million 

RevealIng Its attractIOn

What’s New
• Essentially maintaining our 2011-02 forecasts following yesterday’s 1H10 results (refer to RHS table overleaf), but tweaking 2010’s earnings downwards mainly due to forex losses at Norwegian Cruise Line (NCL).
• We expect Genting Hong Kong (GENHK) to unveil a much stronger net profit in 2H10 led by seasonal strength in the cruise business and snowballing profits at Resorts World Manila (RWM).

Stock Impact

• 1H10 earnings indicate sustained recovery. GENHK achieved an estimated pre-exceptional net profit of US$0.2m in 1H10, reversing 1H09’s loss of US$21.7m. The figure is at the low end of our forecast, due to start-up costs for the EPIC (which set sail in July) at 50%-owned US cruise operator NCL, and poor luck factor at the Penang cruise operation under Star Cruises (Asian cruise operation).
• A much stronger 2H10 unfolding. We expect GENHK to deliver a net profit of US$77m, driven by strong 3Q10 seasonal demand at both NCL and Star Cruises, and with RWM steamrolling out fat returns. Earnings drivers for the cruise business are: a) rising ticket prices at both NCL (+5.8% yoy for NCL in 1H10) and Star Cruises, b) rising occupancy rates of >100% for non-day cruise routes, c) absence of 1H10’s pre-operating cost and maiden contribution for the EPIC, d) increased ship utilisation at Star Cruises with new route deployment (Hong Kong-Taiwan-Japan cruise) and bareboat charter with NCL for Norwegian Sky (1 Jul 10 to 31 Dec 12) for a total charter hire fee of US$53.4m, and e) normalised luck factor at the cruise casino operation.

• RWM’s rising attractiveness. 50%-owned RWM performed in line, contributing about US$10.2m to GENHK’s net profit, against our full-year forecast of US$39.1m. The payback for this >US$400m project has been so lucrative that its net debt has fallen to about US$50m.

• RWM could top our 2010 net profit expectation of US$78m should it continue to deliver a gross gaming win of at least US$1.5m (which we estimate it has achieved in Jun-Aug 10) compared with just over US$1.0m in 1H10. We understand that Jul 10’s annualised net earnings reached US$160m, and RWM also clocked in the highest daily win last week exceeding US$7.0m. For 2011, we expect RWM to deliver a net profit of US$215.5m assuming a daily win of almost US$1.6m and EBITDA margin of 41%.

• Potentially a big beneficiary of Manila. There are talks of the Philippine’s new administration exploring the possibility of outlawing slot parlour operations at non-tourist sites. If true, RWM could gain market share in the lucrative market. RWM’s slot operation (over 1,200 machines), which accounts for an estimated one-third of RWM’s bottom line, could gain significantly. Presently, non-casino slot parlours operate about 5,000 slot machines. RWM could eventually attract 20,000-25,000 visitors daily, up from 9,000 presently, after the integrated resort-casino’s grand opening at end-Nov 10. Potentially another crowd booster, there is a possibility that city check-in could be introduced for the nearby local (budget) air terminal.

• No competition in sight. It appears that the other three licence concessionaries at the Manila Bay mega casino development have initiated little construction works (if at all), thus giving RWM more time to harvest the burgeoning demand integrated resort-casinos.[/b]

Earnings Revision
• We trim our 2010, 2011 and 2012 net profit forecasts by 6.5%, 2.5%, 3.2% to US$8937m, US$181.0m and US$195.6m respectively. By 2011, RWM is expected to account for about 60% of GENHK’s net profit.

Valuation/Recommendation
• BUY on weakness; maintain our RNAV-based target price of US$0.31, which implies target 2011F fully-diluted PE and adjusted EV/EBITDA of 12.9x and 6.7x respectively.

Share Price Catalyst
• Strong earnings growth, dividend policy, future listing of NCL and RWM.

Last edited by kgaihc on Thu Sep 02, 2010 8:53 am; edited 2 times in total

It added that it was working on more than 500 additional prospects for exhibitions, meetings, incentives and conventions.

Mok Fei Fei