The revenue was up 14% qoq (but down 3% yoy) contributed by higher drop (7% qoq) and better win percentage of 14.5% (vs 13.4% in 1Q09) at casinos in UK. Management has indicated that casino attendance has stabilized, particularly at provincial casinos.
UK casino operations on the mend. UK casino operations registered an operating income of S$5.3m (before net foreign exchange gain/loss and interest expense) for 1H09, as compared a loss of S$7.4m in previous corresponding period. The improvement is largely attributed to measures put in place by management in streamlining and restructuring the business, which includes a reduction of 600 staff and stringent cost controls.
Another S$675m drawndown. GENS has drawndown another S$675m from its S$4.b credit facility and bring the total drawndown amount of S$1.7b as at 30 Jun 09 to finance the construction of Resorts World Sentosa (RWS).
Increase in pre-opening expenses. S$14.5m pre-opening expenses for RWS were incurred in 1H09, mainly associated with the acceleration of recruitment, training, sales and marketing programmes prior to RWS' opening. As at 30 Jun 09, about 400 personnel had been recruited for RWS' operations.
Universal Studios Singapore (USS). Management guided that testing and commissioning of USS will commence in few weeks time, and that due diligence testing and safety of the rides is management's priority. Management will not rush these issues to achieve an earlier opening date. RWS' soft opening target remains unchanged at 1Q10, as indicated previously.
The 2Q09 results suggest that the adverse operating conditions in UK have stabilized, given the higher drop and stabilised attendance registered at UK casinos. For RWS, we expect pre-opening expenses to accelerate in 2H09. Going forward, GENS' prospects will be driven by continuous positive news flow from RWS, such as a possible earlier-than-expected opening of RWS (before the targeted 1Q10), further delay of Marina Bay Sands' opening, and a better regional economic outlook, which will drive Singapore's tourist arrivals. We are going to initiate coverage on this stock with a preliminarily target of S$0.95 per share based DCF valuation, which implies 2011 EV/EBITDA of 12.7x.
Impacts on Genting. GENS' 1HFY09 loss is within our expectations. Our forecasts for Genting Berhad already imputes higher 2H09 pre-opening expenses incurred at RWS. Maintain BUY on Genting Berhad. Our target price of RM6.15 per share is under review.
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