Genting Hong Kong (KimEng)

Event:
Genting Hong Kong’s (GENHK) share price has retreated recently in tandem with that of Genting Singapore (GENS). Though the share prices of both have been highly correlated, we believe GENHK offers a different growth profile and should be looked at independently. The fall in share price puts the stock in an attractive position and presents 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 for an IPO. 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.

We also believe that the IPO of Norwegian Cruise Line (NCL) could be pushed back to next year, given the current weak market conditions. In our opinion, this is not a negative event as we see the possibility of NCL receiving 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% increase in fuel price, it managed to reduce Net Cruise Cost per Capacity Day by 1.3% YoY, 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 northwards, NCL would inadvertently feel some margin pressure.

Action & Recommendation:
GENHK is invariably associated with GENS but it is time it walks out of that shadow. We like GENHK for the potential offered by its gaming operations in Manila, as well as its recovering cruise business. Current share price implies FY11F adjusted EV/EBITDA of only 10.1x. Maintain BUY and target price of $0.54.