SINGAPORE (March 20): UOB Kay Hian is maintaining its “hold” call on Genting Hong Kong with a target price of 28 US cents (39 cents) despite noting an improvement FY16 cruise operating statistics, on the belief that the stock’s share price will remain stagnant until it achieves better earnings visibility.
The research house recommends an entry price of 24 US cents.
In a Monday note, lead analyst Vincent Khoo highlights that other losses, such as one-off expenses related to Genting HK’s yards, have widened for the group in 2016 – indicating uncertainty for the group’s earnings.
In particular, Khoo notes continuing pre-operating costs with its “ambitious” and “aggressive” fleet expansion plans for all three cruise brands under its portfolio, which he believes will have the group taking more time to achieve normalised earnings.
“Overall, we expect Genting HK to still incur losses in 2017, given that it will see heavy pre-operating and marketing cost during the year, due to the launch of World Dream and two river cruises by Crystal Cruise. However, the quantum could be smaller y-o-y due to the absence of one-of costs related to yard acquisition,” observes the analyst.
Meanwhile, the analyst notes that the group’s first Dream cruise ship, Genting Dream, has been well-received thus far with an occupancy rate of 115% during the Chinese New Year period.
The second vessel under the Dream line, World Dream, is currently under construction and is expected to be delivered in Nov 17.
Khoo also thinks that over the longer-term, the group’s cruise-focused strategy and in-house capabilities in ship-building is deemed positive – although its step-up in operating costs from newbuilds still remains a key concern for near-term earnings growth.
“We believe Genting HK’s cash pile will continue to erode given the massive capex required for fleet expansion until 2022,” he adds.
As at 12.14, shares of Genting HK are trading 1.6% lower at 31 US cents.
