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
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