A much stronger 2H10 unfolding. We expect GENHK to deliver a net profit of US$77m, driven by strong 3Q10 seasonal demand at both NCL and Star Cruises, and with RWM steamrolling out fat returns. Earnings drivers for the cruise business are: a) rising ticket prices at both NCL (+5.8% yoy for NCL in 1H10) and Star Cruises, b) rising occupancy rates of >100% for non-day cruise routes, c) absence of 1H10’s pre-operating cost and maiden contribution for the EPIC, d) increased ship utilisation at Star Cruises with new route deployment (Hong Kong-Taiwan-Japan cruise) and bareboat charter with NCL for Norwegian Sky (1 Jul 10 to 31 Dec 12) for a total charter hire fee of US$53.4m, and e) normalised luck factor at the cruise casino operation.
RWM’s rising attractiveness. 50%-owned RWM performed in line, contributing about US$10.2m to GENHK’s net profit, against our full-year forecast of US$39.1m. The payback for this >US$400m project has been so lucrative that its net debt has fallen to about US$50m.
RWM could top our 2010 net profit expectation of US$78m should it continue to deliver a gross gaming win of at least US$1.5m (which we estimate it has achieved in Jun-Aug 10) compared with just over US$1.0m in 1H10. We understand that Jul 10’s annualised net earnings reached US$160m, and RWM also clocked in the highest daily win last week exceeding US$7.0m. For 2011, we expect RWM to deliver a net profit of US$215.5m assuming a daily win of almost US$1.6m and EBITDA margin of 41%.
Potentially a big beneficiary of Manila. There are talks of the Philippine’s new administration exploring the possibility of outlawing slot parlour operations at non-tourist sites. If true, RWM could gain market share in the lucrative market. RWM’s slot operation (over 1,200 machines), which accounts for an estimated one-third of RWM’s bottom line, could gain significantly. Presently, non-casino slot parlours operate about 5,000 slot machines. RWM could eventually attract 20,000-25,000 visitors daily, up from 9,000 presently, after the integrated resort-casino’s grand opening at end-Nov 10. Potentially another crowd booster, there is a possibility that city check-in could be introduced for the nearby local (budget) air terminal.
No competition in sight. It appears that the other three licence concessionaries at the Manila Bay mega casino development have initiated little construction works (if at all), thus giving RWM more time to harvest the burgeoning demand integrated resort-casinos.
BUY on weakness; maintain our RNAV-based target price of US$0.31, which implies target 2011F fully-diluted PE and adjusted EV/EBITDA of 12.9x and 6.7x respectively.
Share Price Catalyst - strong earnings growth, dividend policy, future listing of NCL and RWM.