Genting Hong Kong Ltd - Star Cruises lifted the anchor (CIMB)

OUTPERFORM Maintained

US$0.33 Target: US$0.53

Mkt.Cap: US$2,565m/US$2,565m

Gaming

• Above; maintain OUTPERFORM. Stripping out a US$13m litigation claim, 1H11 core net profit, at 51% of our FY11 forecast and 34% of consensus, is above our expectation but below consensus. The discrepancy was stronger-than-expected revenue from Star Cruises which drove EBITDA margins higher. Consensus might have been too bullish on the share of profits from JCE. To reflect Star Cruises’ better-than-expected results, we raise our FY11-13 revenue forecasts by 4-9% and EBITDA margins by 2-2.8% pts. Accordingly, our earnings estimates climb by 7-9%, lifting our SOP target price from US$0.51 to US$0.53. We continue to expect catalysts from: 1) the continuous ramp-up of RWM; and 2) better-than-expected cruise operations in 2H11. We continue to regard the stock as good proxy for the expanding Philippine casino and recuperating cruise sector.

• Strong topline from Star Cruises. Hot on the heels of an impressive turnaround by NCL in 2Q11, Star Cruises’ posted strong operational results (previously uninspiring), suggesting that the Asian cruise business could still be a growth driver for the group. Spurred by a 23% yoy increase in topline, Star Cruises’ EBITDA jumped 21.8% yoy. Despite a 21.5% yoy hike in average fuel prices, EBITDA margins were maintained at 27.1% in 1H11 (27.3% in 1H10). There was: 1) a 32% yoy surge in onboard gaming revenue; 2) 8% yoy growth in ticket revenue; 3) an 11% yoy increase in capacity days; and 4) higher occupancy rates from 1H10’s 82% to 84%. The surge in gaming revenue indicates that Star Cruises has positioned its fleet strategically to capitalise on growing regional demand for casino gaming. The group also revealed that one of its ships will be deployed to Sanya for the first time in November, offering 4D/3N and 3D/2N cruises around the region.

• Share of profits from JCE in line. In 1H11, Genting HK’s share of profits from its jointly controlled entities (JCE) amounted to US$41m, or 40% of our full-year estimate, largely within expectations. Our earnings projections for NCL tilt towards the conservative end as we expect headwinds beyond 4Q11. Consensus estimates for share of profits from JCE for FY11 are 30% above our forecast.