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.

Goodpack Ltd - Strong FY11 performance (OCBC)

Maintain BUY

Previous Rating: BUY

Current Price: S$1.64

Fair Value: S$2.15

FY11 results exceed expectations. Goodpack reported a strong set of results with a 28% YoY growth in FY11 revenue to US$158.6m on the back of increased demand from customers and higher penetration in existing markets. Synthetic rubber continued to be the top revenue contributor (54% of revenue) while natural rubber provided 33%. PATMI grew 28.7% YoY to US$43.2m despite increases in logistic and handling costs (+32.7% YoY) as a result of the surge in fuel prices over the past year, and interest expenses (+79.9% YoY) related to higher loan balances. Goodpack's results exceeded our expectations with both top and bottom line figures beating our forecasts by 3.7%and 7.9%, respectively. Goodpack also proposed a final and special dividend totaling S$0.03 per share, which translates to a dividend yield of 1.8% (previous year: S$0.05 per share; 3.0% dividend yield)

Exploring new opportunities for the future. Management has been exploring opportunities in the automotive space, and has already initiated trials with global car manufacturers (OEMs) and car parts suppliers. Goodpack seeks to replace the current disposable packaging utilized by these companies with its IBCS. While nothing significant (in terms of brand recognition and order size) has been finalized at the moment, management is confident of its ability to secure orders eventually. Should that occur, it is a potential new market segment for Goodpack. In addition, any IBC supply shortfalls can be covered relatively quickly given Goodpack's leasing agreement with CIMC (a three-month notice period is required for CIMC to add additional IBC production lines.)

Increase rates to boost top line. Management also intends to boost its top line by increasing rates on renewed contracts by a total of 10-15% over the life of the contract (typically three years). Furthermore, it has embarked on a RFID tagging initiative for its IBCs to enhance its utilization and tracking abilities.

Maintain BUY with fair value of S$2.15. Although the market has built-in expectations for a possible economic downturn, we note that the group survived the 2009 financial crisis pretty much unscathed and even managed to post a revenue growth of 2.9%. While current conditions may not be identical to 2009, we continue to like Goodpack for its strong fundamentals and promising growth potential. Hence, we fine-tuned our Free-Cash-Flow-to-Equity Model (FCFE) to incorporate a modest revenue growth rate of 8% (+3% previously) to reflect the additional rate increases, and raise our fair value estimate to S$2.15 (S$2.12 previously), which implies a valuation of 18.2x FY12F EPS. Maintain BUY.

Karin Technology Hldgs - Ends FY11 with a strong set of results (OCBC)

Maintain BUY

Previous Rating: BUY

Current Price: S$0.235

Fair Value: S$0.345

Strong set of FY11 results. Karin Technology (Karin) announced a strong set of 2HFY11 results which beat ours and the streets' estimates. Revenue surged 57.3% YoY to HK$1.3b while net profit increased 22.4% YoY to HK$30.2m. For FY11, revenue jumped 38.7% to HK$2.2b, which exceeded our forecasts by 15.1%. Net profit accelerated 52.6% to HK$51.6m. This was boosted by fair value gains on investment properties (HK$6.0m) and derivative instruments (HK$1.3m) as well as forex gains of HK$5.1m, but offset by impairment of trade receivables (HK$8.2m) and write-down of obsolete inventories (HK$3.0m). Excluding forex effects and these exceptional items, we estimate that core earnings would have increased by 87.8% to HK$50.5m. This came in 18.2% above our estimates.

IT infrastructure the key growth driver… Karin's revenue, its highest since its IPO in 2005, was driven largely by a 64.0% surge in sales from its IT Infrastructure segment to HK$1.4b. Contribution to top-line from this segment increased from 55.1% to 65.1%. This strong growth was aided by the distribution of Apple's iPad 2 in Hong Kong and Macau. Notwithstanding the surge in sales volume growth, Karin's gross profit margin declined 1.4 ppt to 7.8% largely due to a change in product mix arising from strong contribution from the iPad 2 which typically carries thinner margins. Nevertheless, this was mitigated by economies of scale as net margin improved to 2.4% (previously 2.2%).

…but initiatives in place to grow other segments as well. While we expect contribution from iPad 2 to continue, we believe management would continue to broaden its products offerings and also focus more intently on the higher margins components distribution segment. This would entail smartphone components and energy saving home appliances which has already started to gain traction.

Consistent and attractive dividends payout. Karin also declared a final dividend of 7 HK cents/share, bringing total declared dividends for FY11 to 12 HK cents/share. This represents a dividend payout ratio of 47.9% and translates into an attractive dividend yield of 7.9%.

Maintain BUY. We bump up our FY12 revenue and earnings estimates by 17.8% and 26.3% respectively, as its results had strongly exceeded our expectations. We also update our HKD/SGD assumptions given the continued weakness of the HKD versus SGD. Our FY13 forecasts are introduced and we roll forward our valuation to 8x FY12F EPS. As such, our fair value estimate increases from S$0.315 to S$0.345. Karin is currently trading at 5.4x FY12F PER and 0.8x FY12F P/NTA, against a projected EPS CAGR of 11.5% from FY11-FY13F. Maintain BUY.