Starting a post these days is getting tougher and tougher. Juggling between work, studying and stock picking is just a little overwhelming. Did you guys like Genting Hong Kong? It has done well since the last post, but so did the rest of the market. The most common question posed to me these days is "why is the market so bullish when nothing has changed?". Bad news is still in the market but investors are just choosing to ignore everything. On the positive side of things, we have seen Bernanke doing his best to boost markets by increasing transparency on his policies. There was also the Long Term Refinancing Operations done by the ECB, that has really been the real reason to why the market has come back so strongly.
Remember my first post of the year? I did say, we have to keep an open mind this year as this will be the year of unusual uncertainty. I bet most people did not expect the year to start off with such a bang. Corporate earnings season has not been great at all. Plenty of profit warnings have been issued and revenue growth for many large corporations have disappointed. This should not come as a surprise as the global economy has indeed slowed down and demand for many products have slowed down. How long is this rally going to last? I would say that the market is technically overbought at this moment and a short term correction may come soon. However with all the talk about QE3 and interest rates being held at this ultra low level till late 2014, the ECB out to do another LTRO by the end of Feb, the market should hold up pretty nicely.
Fact of the matter is, the rally is purely liquidity driven and it has nothing to do with fundamentals. Valuations are cheap no doubt, but earnings can be expected to moderate over the next couple of quarters. What we are witnessing here is once again distortion in the markets due to unprecedented amount of liquidity being pumped into the markets. I commented to one of my colleagues the other day, that we should just throw all our finance textbooks out of the window as the normal relationships between asset classes are no longer applicable. Distortions from these actions from policy makers and central bankers are going to cause new books to be written on economics and finance as new lessons will be learnt from these actions. Honestly, I personally am worried about what the world will become once the dust settles.
Giving an educated guess is all I can do and what I want to say is that the growing divide between the rich and the poor is going to be even larger by the time this debacle is over. Why? Asset inflation is going to be the key words to remember. Consider this....are you really getting richer because of the asset price increase or are you only keeping up with inflation as the money supply is doubled, tripled, quadrupled etc. When our grand parents bought their flats over 30 years ago, they paid 20-50k for their flats. Now those same flats are going at more than 500k. Is it because they were astute and made the right decisions to invest in property or is the price of the property just a clear reflection of inflationary pressures and destruction of our purchasing power? Just because your net worth doubled over the past 10 years does not mean that you are richer, it just means that the money supply has doubled and your asset has inflated. Now lets just think about what is happening at this time. I honestly think that asset inflation is only going to make the wealthy richer as they have the means and ability to invest their money but for those who only earn enough to save a menial sum, things are going to get worse. They will not be able to invest their money in those assets as prices just get overly exorbitant and their savings will only keep losing their value. That is why I believe the divide will get even more obvious.
So you may ask, why I think the LTRO has worked in calming the markets when Greece is probably still going to default. The fact of the matter is, no one expects Greece to not default. The question is whether it is a disorderly or an orderly one. The default is something that has been pretty much priced into the markets and even if it defaults, the market is still going to be fine. The worry is how the rest of the problematic countries like Portugal, Spain or Italy going to be affected by this. Does a Greek default signal the possibility of other Eurozone countries defaulting? What we are seeing in the European sovereign debt markets is that yields are falling. That is a good sign but there is no guarantee that is it sustainable. Why are the yields falling? That is because the LTRO has allowed the European banking system to attain refinancing which would have not been available and some of the cash injected in the system is going back into the sovereign markets. Throw in the fact that this move has removed the worries over the banking system and significantly lowers the risk of a systemic meltdown in the banking system in the short term. The market is currently relieved that the banking system is safe for now.
I do not deny that a systemic meltdown has been averted but risks still remain as this is just another kick of the can down the road. Nothing has been solved. The question is whether to join in the market cheering or to sit on the sidelines. This is really the million dollar question. Is it too costly to really just sit back and watch everything unfold? As I mentioned earlier, asset inflation is happening now and if you do not get in, will you be left behind? This is really a "catch 22" situation.
Personally, I have been very cautious while at the same time taking opportunistic bets on the market. I am a momentum trader and my broker commented that I seem to like buying at day highs for the counters I trade in. Momentum trading has helped my returns over the 4 weeks. But I am seeing the momentum slow down for the time being. The fact that I am involved in the market every day is very helpful for my own portfolio as I can actively monitor and adjust my positions but for those of you who are not staring at the monitor 24/7 like me, it is a lot harder. My advise is still to go for the companies which you believe are cheap, trading at a good level, sustainable in terms of earnings and you are willing to hold over the next few years. I know plenty of people are bearish on the property counters right now, but I feel the property counters have pretty much priced in the possibility of a property market slowdown, but plenty of them have strong balance sheets and trade at a good discount from the NAV and RNAV. Capitaland is one of these companies. Wheelock is also another. Buy and accumulate these counters slowly and you will be rewarded over the next few years. I am pretty sure.
Just wanted to put some of my thoughts into writing for this week. Nothing much more to say. Will post more regularly after I finish with my exams. Have a great week ahead and Happy CNY to all of you!
Best,
SVI
Saturday, January 28, 2012
Sunday, January 15, 2012
Genting Hong Kong. Buy US$0.315. A Philippines growth story.
How do we start off the new year? With a bang! The market has been cheering since the new year started. Like I said in my previous post, we have to keep an open mind. Why is the market in such a cheery mood? Has anything changed since the end of 2011? The answer is no. I start off every new year with big ambitions on how I am going to make my life so much more meaningful but what happens in the end? Still chasing money with no meaning to anything. Why did I say this out loud? Because that is how the markets are feeling. They want to start off the new year on a positive note and put the horrible 2011 behind them. Not off to a bad start so far, but the question is all about the sustainability. I certainly hope it is because it will be because my job depends on it.
Decided to come out with my first stock pick for the year. The last two have been pretty good considering the market condition so lets try to make it a good start for the year.
The first pick I am going to give this year is one that is very close to my heart. Maybe it is due to my love for vices. The first stock which has caught my eye for this year is....Genting Hong Kong. For those of you who know me, will know that the Genting group is one that is very close to my heart. Over the past 2 years, I have written on both Genting Berhad and Genting Singapore. So why not just make it a nice trio?
Genting Hong Kong, formerly known as Star Cruises Limited, is a leading global leisure, entertainment and hospitality enterprise, with core competences in both land and sea-based businesses:
Star Cruises - Asia-Pacific
Norwegian Cruise Lines (NCL) - A 50% joint ownership alongside Apollo and TPG.
Star Cruises together with NCL is the third largest cruise operator in the world, with a combined fleet of 18 ships cruising to over 200 destinations, offering approximately 35,000 lower berths. This has been a drag on their earnings over the past years however after restructuring and redeployment of their cruise ships, capacity and occupancy has risen and it really is quite impressive.
Resorts World Manila (RWM) - Manila, Philippines; joint partnership with Alliance Global Group under Travellers International. Resorts World Manila is Genting Hong Kong's first foray in a land-based attraction and what an attraction it has been. RWM opened its doors to the public in August 2009, and is one of the premier leisure brands under the Genting Group, representing a flagship integrated leisure and entertainment complex featuring 3 hotels including a six star all-suite Maxims Hotel, an iconic shopping mall, 4 high-end cinemas and a multi-purpose performing arts theatre.
Headquartered in Hong Kong, Genting Hong Kong has a presence in more than 20 locations worldwide with offices and representation in Australia, China, India, Indonesia, Japan, Korea, Malaysia, New Zealand, the Philippines, Singapore, Sweden, Taiwan, Thailand, the United Arab Emirates, the United Kingdom, the United States and Vietnam.
Resorts World Manila at Newport City continues to extend its leisure, hospitality and entertainment offerings into its second year of operations. Remington Hotel, the resort’s third hotel offering catered towards the budget conscious traveller, is expected to open its 712 rooms during the second half of 2011. In November 2010, Travellers Group purchased 13,777 square meters of land adjacent to the existing Marriott Hotel for the purposes of constructing a convention centre, which is expected to be completed in approximately 18 months. A fourth hotel of five-star calibre is also expected to be completed within the same time frame.
NCLC Group continues to look forward to the two new Project Breakaway ships, scheduled for delivery in the spring of 2013 and 2014. The two new vessels will join the five existing ships, Norwegian Epic, Norwegian Gem, Norwegian Jade, Norwegian Pearl and Norwegian Jewel, in offering “The Haven”, an exclusive suites complex which offers passengers an additional level of privacy and luxury, complete with a private courtyard and pool area, restaurant, bar and concierge lounge. So if you have the time or the money, do consider going for it. After reading through their offerings, I cannot help but to consider whether I have the resources to go for one of those cruises.
Profit for the Group in 1H 2011 was US$61.8 million, increased 445.6% compared with US$11.3 million in 1H 2010.
Contributions from jointly controlled entities, Travellers International Hotel Group, Inc. and its subsidiaries Travellers Group and NCL Corporation Ltd, during the period were US$25.7 million and US$12.3 million, respectively. Share of profit from Travellers Group increased US$15.5 million from the same period in 2010, while share of profit from NCLC Group was US$12.3 million in 1H 2011 compared with a share of loss of US$18.7 million in 1H 2010
EBITDA for the period improved 21.8% to US$61.5 million, compared with US$50.5 million for the same period in 2010. Capacity days increased by 10.8% from approximately 0.8 million to 0.9 million capacity days due to the full operations of m.v. SuperStar Libra in 1H 2011
Total revenue increased by 22.9% from US$184.7 million in 1H 2010 to US$ 227.0 million in 1H 2011 mainly due to the 32.2% increase in gaming revenue from 1H 2010. If we look at Genting HK, its fortunes turned around when Resorts World Manila opened in 2009. GHK and its Philippine partner Alliance Global Group will reportedly start building their second gambling resort called Resorts World Bayshore next year following the success of Resorts World Manila, currently the largest casino in Philippines. Resorts World Bayshore will measure almost 40ha and feature some 2,500 hotel rooms as well as leisure, retail, gaming, and entertainment facilities. No doubt, the building of 3 other casinos in Manila is going to affect the growth of Resorts World Manila but I still believe the gaming market is still going to grow and it will continue to generate sustainable profits over the long term.
Another thought that crossed my mind is the possibility of spinning off Resorts World Manila as Genting Philippines. It probably will happen but maybe not in the near future. With Genting's vision of internationalizing its brand, it will not come as a surprise to me if that happens. What do I mean by this? 3 years ago, we did not have Genting Singapore or Genting Malaysia or even Genting Hong Kong. There was only Genting Berhad, Resorts World Malaysia and Genting International. Now we are looking at a possible Genting New York and Miami in the near future. We already have Genting Malaysia and Singapore. So will you be surprised if there is a Genting Philippines?
Clearly on a valuation basis, Genting Hong Kong is not cheap because it is trading at 20 times 2011 p/e but if you believe in its growth story and considering net profit for 1H2011 has grown 330% excluding one-off gains. Of course this is not sustainable but a 20% growth rate over the next 2 years is very possible and that would make its current valuation pretty reasonable. Throw in the expansion plans in Manila and further fleet rationalizations and refurbishments, the company should continue to grow. With a gearing ratio of 0.14 times as of end June 2011, the company will be able to further leverage to finance their expansion plans and that will also mean that the company should be able to weather the current economic slowdown easily with no financing issues. Lastly, I have a lot of faith in Genting's management and their track record has been impeccable.
I have always loved the gaming business. There is plenty of growth and demand for casinos in Asian markets because of the gambling nature of Asians and throw in the strong demand for money laundering activities (you know what I mean), gaming is a great growth industry. I know this is not exactly the most socially responsible industry to invest in but my view is social responsibility does not go well with investments. So its better to make money through socially irresponsible investments and use some of the profits to do some charitable donations.
Thats all for this week! Have a great trading week ahead.
Best,
SVI
Decided to come out with my first stock pick for the year. The last two have been pretty good considering the market condition so lets try to make it a good start for the year.
The first pick I am going to give this year is one that is very close to my heart. Maybe it is due to my love for vices. The first stock which has caught my eye for this year is....Genting Hong Kong. For those of you who know me, will know that the Genting group is one that is very close to my heart. Over the past 2 years, I have written on both Genting Berhad and Genting Singapore. So why not just make it a nice trio?
Genting Hong Kong, formerly known as Star Cruises Limited, is a leading global leisure, entertainment and hospitality enterprise, with core competences in both land and sea-based businesses:
Star Cruises - Asia-Pacific
Norwegian Cruise Lines (NCL) - A 50% joint ownership alongside Apollo and TPG.
Star Cruises together with NCL is the third largest cruise operator in the world, with a combined fleet of 18 ships cruising to over 200 destinations, offering approximately 35,000 lower berths. This has been a drag on their earnings over the past years however after restructuring and redeployment of their cruise ships, capacity and occupancy has risen and it really is quite impressive.
Resorts World Manila (RWM) - Manila, Philippines; joint partnership with Alliance Global Group under Travellers International. Resorts World Manila is Genting Hong Kong's first foray in a land-based attraction and what an attraction it has been. RWM opened its doors to the public in August 2009, and is one of the premier leisure brands under the Genting Group, representing a flagship integrated leisure and entertainment complex featuring 3 hotels including a six star all-suite Maxims Hotel, an iconic shopping mall, 4 high-end cinemas and a multi-purpose performing arts theatre.
Headquartered in Hong Kong, Genting Hong Kong has a presence in more than 20 locations worldwide with offices and representation in Australia, China, India, Indonesia, Japan, Korea, Malaysia, New Zealand, the Philippines, Singapore, Sweden, Taiwan, Thailand, the United Arab Emirates, the United Kingdom, the United States and Vietnam.
Resorts World Manila at Newport City continues to extend its leisure, hospitality and entertainment offerings into its second year of operations. Remington Hotel, the resort’s third hotel offering catered towards the budget conscious traveller, is expected to open its 712 rooms during the second half of 2011. In November 2010, Travellers Group purchased 13,777 square meters of land adjacent to the existing Marriott Hotel for the purposes of constructing a convention centre, which is expected to be completed in approximately 18 months. A fourth hotel of five-star calibre is also expected to be completed within the same time frame.
NCLC Group continues to look forward to the two new Project Breakaway ships, scheduled for delivery in the spring of 2013 and 2014. The two new vessels will join the five existing ships, Norwegian Epic, Norwegian Gem, Norwegian Jade, Norwegian Pearl and Norwegian Jewel, in offering “The Haven”, an exclusive suites complex which offers passengers an additional level of privacy and luxury, complete with a private courtyard and pool area, restaurant, bar and concierge lounge. So if you have the time or the money, do consider going for it. After reading through their offerings, I cannot help but to consider whether I have the resources to go for one of those cruises.
Profit for the Group in 1H 2011 was US$61.8 million, increased 445.6% compared with US$11.3 million in 1H 2010.
Contributions from jointly controlled entities, Travellers International Hotel Group, Inc. and its subsidiaries Travellers Group and NCL Corporation Ltd, during the period were US$25.7 million and US$12.3 million, respectively. Share of profit from Travellers Group increased US$15.5 million from the same period in 2010, while share of profit from NCLC Group was US$12.3 million in 1H 2011 compared with a share of loss of US$18.7 million in 1H 2010
EBITDA for the period improved 21.8% to US$61.5 million, compared with US$50.5 million for the same period in 2010. Capacity days increased by 10.8% from approximately 0.8 million to 0.9 million capacity days due to the full operations of m.v. SuperStar Libra in 1H 2011
Total revenue increased by 22.9% from US$184.7 million in 1H 2010 to US$ 227.0 million in 1H 2011 mainly due to the 32.2% increase in gaming revenue from 1H 2010. If we look at Genting HK, its fortunes turned around when Resorts World Manila opened in 2009. GHK and its Philippine partner Alliance Global Group will reportedly start building their second gambling resort called Resorts World Bayshore next year following the success of Resorts World Manila, currently the largest casino in Philippines. Resorts World Bayshore will measure almost 40ha and feature some 2,500 hotel rooms as well as leisure, retail, gaming, and entertainment facilities. No doubt, the building of 3 other casinos in Manila is going to affect the growth of Resorts World Manila but I still believe the gaming market is still going to grow and it will continue to generate sustainable profits over the long term.
Another thought that crossed my mind is the possibility of spinning off Resorts World Manila as Genting Philippines. It probably will happen but maybe not in the near future. With Genting's vision of internationalizing its brand, it will not come as a surprise to me if that happens. What do I mean by this? 3 years ago, we did not have Genting Singapore or Genting Malaysia or even Genting Hong Kong. There was only Genting Berhad, Resorts World Malaysia and Genting International. Now we are looking at a possible Genting New York and Miami in the near future. We already have Genting Malaysia and Singapore. So will you be surprised if there is a Genting Philippines?
Clearly on a valuation basis, Genting Hong Kong is not cheap because it is trading at 20 times 2011 p/e but if you believe in its growth story and considering net profit for 1H2011 has grown 330% excluding one-off gains. Of course this is not sustainable but a 20% growth rate over the next 2 years is very possible and that would make its current valuation pretty reasonable. Throw in the expansion plans in Manila and further fleet rationalizations and refurbishments, the company should continue to grow. With a gearing ratio of 0.14 times as of end June 2011, the company will be able to further leverage to finance their expansion plans and that will also mean that the company should be able to weather the current economic slowdown easily with no financing issues. Lastly, I have a lot of faith in Genting's management and their track record has been impeccable.
I have always loved the gaming business. There is plenty of growth and demand for casinos in Asian markets because of the gambling nature of Asians and throw in the strong demand for money laundering activities (you know what I mean), gaming is a great growth industry. I know this is not exactly the most socially responsible industry to invest in but my view is social responsibility does not go well with investments. So its better to make money through socially irresponsible investments and use some of the profits to do some charitable donations.
Thats all for this week! Have a great trading week ahead.
Best,
SVI
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