Genting Hong Kong has been downgraded to a ‘sell’ at UOB Kay Hian over concerns about competition in the Asian cruise market.
“We expect Genting’s losses from the cruise segment to further widen in 2017, from 2016’s reported ebitda loss of $90m,” said UOB Kay Hian analysts Vincent Khoo and Yeoh Bit Kun.
“On top of the pre-operating costs from the new Dream and Crystal ships, the newly acquired shipyard operation could extend its operating losses.
“Most of Genting’s new shipbuilding plans are still in the design stage and will not translate into revenue for the shipyard.
“Meanwhile, ebitda contribution from cruise operations are still hampered by the slow occupancy ramp-up at the Dream and significant pre-operating costs for new ships that would generally extend over the next five years.”
The two UOB Kay Hian analysts said the Chinese cruise market, which was originally Genting’s targeted market for its upcoming mega ships, is currently seeing a price war as new industry capacity growth outstrips demand.
“We gauge that Genting’s first mega cruise ship, Genting Dream, managed an average occupancy rate of only 80% in contrast, a US cruise ships typically commands an occupancy rate of around 100% of lower berth capacity.
“This implies that Genting Dream would need to significantly lift its occupancy rate to reach ebitda breakeven.”
