Genting Hong Kong

Kim Eng on 26 Mar 2012

Record profit confirms turnaround. Genting Hong Kong (GenHK) reported FY11 revenue of US$515.5m (+28.9% YoY) with a record net profit of US$182.2m (+120.5% YoY). The results met our expectations and were far ahead of consensus. They confirmed the company’s turnaround on all fronts. Norwegian Cruise Line (NCL) delivered a record EBITDA of US$506.0m. Resorts World Manila (RWM) performed well in its second year of operation with Travellers International posting EBITDA of US$214.4m, more than double last year’s US$102.0m. Reiterate Buy with the target price raised to US$0.53.

Asian cruise strategy a success. GenHK has been fine-tuning its Asian cruise strategy and its fleet rationalisation has produced positive results. What came as a pleasant surprise was the 42.6% improvement in gaming revenue as a result of these actions. We believe that the routes to Hong Kong and Taiwan have spawned this increase.

NCL bookings on the rise again. Net yield for NCL inched up by 3% to US$173.4 for FY11. The company will also take delivery of two new vessels in 1H13 and 1H14, which would add about 15% each to its existing capacity. This should lift EBITDA to US$677m in FY14F, based on our forecast. The Costa Concordia cruise ship incident had had only a short-lived adverse impact on the industry and we understand that booking trends have picked up after a negative knee-jerk reaction.

Positive factors bode well for Manila gaming business. Average daily visitors to RWM reached 19,500 last year, from about 12,700 the previous year. Travellers thus saw an 85.3% YoY surge in revenue for FY11. Moreover, key macro data in the Philippines are positive, with January 2012 tourist arrivals hitting above 400,000 for the first time. We understand that most VIPs currently are locals and there should be ample room to build up on overseas VIP volume. Ongoing developments in RWM should drive visitor volume upwards.

Reiterate Buy, raise target price to US$0.53. We raise our SOTP-based target price to US$0.53 as we increase our EBITDA forecasts for Star Cruises and NCL by 13% and 2%, respectively. Reiterate Buy.