Thursday, August 16, 2012
Genting SP: Macquarie upgrade from Neutral to Outperform and raise TP from $1.55 to $1.70. Note that while 2Q12 result was weak believe this was dragged down by a number of factors that should start to get resolved from 4Q12, driving a recovery in profitability that could positively surprise investors. Given its slower growth profile, GENS may look expensive 9.3x 2013 tax-adjusted EV/EBITDA vs Macau at around 9x. However, GENS has another 25 years left on its concession, vs Macau at 8–10 years. This gives investors more certainty on GENS’s long-term cashflow generation ability and is a reason why GENS’s multiple cannot be simply compared to Macau. Macquarie believes GENS looks more attractive than Macau on Free Cash Flow (FCF) yield. GENS’s 2013 FCF yield is 7.7%, but the co has completed all of its capital expenditures, while Macau trades at 6–11% with significant Cotai capital expenditures yet to come. Believes that GENS’s 1H12 performance was held back by a number of factors that are set to turn around from 4Q12. These factors not only impacted revenue performance, but also margins performance and MER expects them to reverse from 4Q12.