Genting HK

Genting HK: Fulfilling its Jul profit guidance, Genting HK reported an almost nine-fold jump in 1H15 net profit to US$2.17b, boosted largely by accounting gain of US$2.17b from partial sale and reclassification of Norwegian Cruise Lines (NCLH).

Stripping out one-off items (including net FX and fair value gains), 1H15 pretax profit would have sunk 71.6% to US$12.3m.

Revenue slipped 2.3% to US$275.1m primarily due to a 56.2% drop in non-cruise related revenue to US$10m as well as a 11.5% decline in on-board revenue (which includes F&B and gaming) to US$165.6m. This was partially mitigated by a 39.1% jump in passenger ticket sales.

On a segmental basis, its cruise and cruise-related activities saw a return to profitability with an operating profit of US$0.3m compared to US$13.5m loss in 1H14. This was mainly due to the profit contributions from Crystal Cruises acquired in May’15 and absence of promotional spending.

However, non-cruise operations more than doubled its operating losses to US$16.3m from US$7.8m a year ago. This was mainly due to wider losses from its Manila operations, and the amortisation of its Macau land.

Consequently, the group narrowed its operating losses to US$16m from 1H14’s US$21.3m.

Bottom line earnings were further weighed on by a 93.8% slump in its share of profits from NCLH to US$2.9m after it reduced its stake as well as a 18.7% drop in contributions from Travellers to US$22.6m due mainly to lower gaming volume.

Going forward, Genting HK will be taking delivery of two new 4,500-pax cruise ships in 4Q16 and 4Q17, which will reinforce Star Cruises’ leading position in the Asia-Pacific.

The addition of Crystal Cruises’s two luxury ships to its fleet is expected to expand the group's presence in the luxury segment of the cruise industry. It has ordered three new Crystal cruise ships from a German yard and will be taking delivery of its first Crystal vessel in 4Q18. Crystal will also be expanding into the fast growing ocean yachts and river cruise business over 2016-18.

Meanwhile, 45%-owned PSE-listed Travellers, which owns Resorts World Manila, will add ~3,000 rooms to expand its hotel capacity to 4,200 rooms in the next four years via extensions to Marriott and Maxims hotels and development of new hotels including Hilton Manila and Sheraton Manila. Meanwhile, construction of its second property, Bayshore City Resorts World (Phase 1) is ongoing with expected completion in 2018.

At its current price, Genting HK’s market cap of US$2.63b is at a significant 34.2% discount to its stub valuation of $4b, comprising:
-17.7% stake in Nasdaq-listed NCLH worth US$2.3b
- 45% stake in PSE-listed Travellers International worth US$712m
- 6.6% stake in ASX-listed Echo Entertainment worth US$200m
- Net cash of US$786.1m

The means that its cruise business (Star Cruises and Crystal Cruises) comes for free. Backed by this discounted valuation, the counter continues to sit in Market Insight’s Value portfolio.