SINGAPORE (Aug 2): UOB KayHian is maintaining its “sell” rating on Genting Hong Kong (GENHK) with a target price of 26 cents given its cruise segment is unlikely to turn losses around in 2018.
In 1H17, GENHK reported a record net loss of around US$200 million to US$220 million ($271.3 million to $299 million) compared to 1H16 net loss of US$74 million.
This is excluding contribution from its 45% associate Travelers International that operates Resorts World Manila.
See: Genting Hong Kong sounds 1H consolidated net loss warning
The reasons for GENHK’s net loss include operating loss at its Crystal Cruises due to competition, startup losses in its German shipyard, additional depreciation and amortisation of the new Genting Dream ship and shipyards, as well as additional interest cost of the new Genting Dream ship.
In a Tuesday report, analyst Vincent Khoo says, “Positively, GENHK expects Asian cruises’ business to improve h-o-h in 2H17, although we believe its margins would still be depressed by high costs and wonder if its occupancy rate would enable GENHK (we gathered that Genting Dream has an average occupancy rate of only about 80%) to achieve EBITDA breakeven.”
The analyst expects that the group’s losses will extend to 2H17 and forecasts a US$316 million loss in 2017.
That’s because most of GENHK’s new ship building plans are still in the design stage and will not translate into revenue and the quantum of losses incurred at the shipyards remains unclear.
Meanwhile, Khoo believes that the group’s cash pile will continue to erode given the massive capex required for fleet expansion until 2022.
“We estimate that GENHK’s fleet expansion plan requires at least US$1.2 billion of annual capex over the next three years, which could well exceed the existing fleet’s cash flow generation, hence requiring it to fully monetise its remaining 11% stake in US-listed Norwegian Cruise Line (worth US$1.4 billion based on the current market cap),” says Khoo.
Khoo also notes that the group has divested its 6.4% stake in Star Entertainment for US$211 million to use the proceeds for working capital and/or new investments.
Shares in GENHK are trading at 28 US cents as at 9.39am.
