Genting Hong Kong hasn’t yet shed its concept stock image, and is still in the process of being “discovered” by the market. Formerly known as Star Cruises, the company has been trying to recast itself as an up-and-coming casino play in the vein of Genting Singapore. It owns a 50% stake in Resorts World Manila (RWM), which opened in August 2009 and is now apparently seeing its revenues surge.

 

The full cost of developing RWM is said to be just US$550 million, a fraction of the $6.5 billion that Genting Singapore spent here. Yet, when it is completed, the Manila property could dwarf what Genting Singapore has built on Sentosa. To date, only 213 tables and 1,200 slot machines are operational in Manila and the resort is 55% completed. This month, a third gaming floor will be commissioned, hosting an extra 40 to 50 tables.

 

RWM has already opened the Maxim’s Hotel, and will be completing the Crockfords Villas soon. In addition, some 30,000 sq m of retail space is being opened and a 1,500-seat theatre has been commissioned. The 712-room Remington Condotel will open in 1Q2011. “These ancillary facilities should meaningfully lift daily visitorship from the 6,500 to 7,000 presently,” says local research house UOB KayHian in a recent report.

 

By year-end, 300 tables and 1,300 slot machines will likely be up and running. RWM will have 2,000 tables and 7,000 slot machines when fully completed. Moreover, RWM is just across the highway from the soon-to-be-opened Ninoy Aquino International Airport’s new terminal. Genting Hong Kong is exploring the construction of a walkway connecting RWM to the airport with the airport authority, UOB Kay- Hian says.

 

For 1H2010, Genting Hong Kong reported Ebitda of US$50.5 million. According to the UOB KayHian report, Genting Hong Kong received about US$10 million in dividends from RWM. Assuming Genting Hong Kong achieves a similar Ebitda in 2H2010, its shares are now trading at a EV/Ebitda valuation of 42.6 times. But analysts say Genting Hong Kong’s management is actually guiding for a much higher Ebitda of US$156 million this year, rising to US$200 million in FY2011. That would put its FY2010 and FY2011 EV/Ebitda ratios at 27.6 and 21.5 times, respectively.

On the face of it, the somewhat higher valuations of Genting Hong Kong’s shares versus Genting Singapore might be justified, given the former’s possibly stronger growth potential. But shareholders of Genting Hong Kong face many more unfathomable risks than those of Genting Singapore. For one thing, RWM faces more competition. According to UOB Kay- Hian, there are three other mega casinos in Manila Bay that are scheduled to start operating in 4Q2012.

 

Moreover, Genting Hong Kong still has a very large but barely profitable cruise business. Will the company shunt this business to its parent or another company in the group as Genting Singapore did with Genting UK? Or, will it be its 50% stake in RWM that is eventually hived off elsewhere? With the Genting group’s history of asset-shuffling, it’s impossible to tell. Interestingly, the family of the late Lim Goh Tong owns a much larger proportion of Genting Hong Kong than Genting Singapore, 79.7% versus a deemed 51.7% stake in Genting Singapore through Genting Bhd.

 

Also, officials at Genting Hong Kong are clearly eager to promote the company, actively engaging investors through local securities firms. In fact, one local brokerage firm chartered a private jet to fly 10 fund managers to RWM for an overnight visit last week. And, if they liked what they saw, the positive buzz around Genting Hong Kong may well continue in the weeks ahead.