Analysts: Better for Star Cruises if it sells NCL


  • Business
  • Thursday, 05 Jul 2007

PETALING JAYA: It will benefit Resorts World Bhd if associate company Star Cruises Ltd hives off loss-making Norwegian Cruise Line Holding ASA (NCL), which operates cruise liners in North America and Europe.  

Investment analysts said selling off NCL would be a relief for Resorts World, which has pumped in substantial capital since Star Cruises bought over the company in 2000.  

“First, there will be no more potential capital injection for Resorts World.  

“The disposal would help stop the bleeding in Star Cruises caused by the high interest expenses,” an equity research general manager of a stock broking house told StarBiz

Star Cruises paid net interest expenses of US$54.4mil (RM187mil) for the first quarter ended March 31.  

Citigroup Equity Research reckoned that the impact of the disposal would boost the fair value of Resorts World, which holds a 34% stake in Star Cruises.  

In a research report, it said Resorts World’s target price, which was derived from the sensitivity test, could rise to as high as RM5.08 on assumption of 10% annual revenue growth plus a 5% perpetuity growth. 

Star Cruises said it had no comment on that and it could not confirm any negotiation for the disposal of NCL.  

StarBiz, however, learned that the management would not rule out the potential for such a transaction should the opportunity arise.  

Despite the denial statement, the share price of Star Cruises - which is listed in Hong Kong and Singapore - has climbed in recent weeks.  

In Hong Kong, the stock surged to a high of HK$2.98 before closing at HK$2.95 yesterday. In Singapore, its share price almost doubled to US$0.455 yesterday from US$0.285 on June 18.  

The market talk also lifted the share price of Resorts World, which rose to RM3.76 on Tuesday from RM3.18 three weeks ago. It finished at RM3.64 yesterday.  

The casino operator’s earnings are affected by Star Cruises, which has been in the red most of time after it acquired NCL.  

Star Cruises, in which Tan Sri Lim Goh Tong’s family holds a 59% stake, paid US$1.1bil for NCL plus assumption of US$800mil debts.  

For the quarter ended March 31, NCL incurred a net loss of US$60.8mil on revenue of US$490.8mil.  

Consequently, Star Cruises also incurred a net loss of US$79.39mil and Resorts World’s net profit was trimmed by RM94mil due to losses from this associate company.  

“NLC has been a drag on Star Cruises’ earnings and that, in turn, affects Resorts World,” said SJ Securities head of research Cheah King Yoong. 

Nonetheless, there is scepticism that Star Cruises will find a buyer for NCL, given the challenging environment amid rising fuel costs and growing competition that squeeze profit margin. 

“It may not be the right timing for Star Cruises to sell NCL because the cruise industry is currently in a difficult time. 

“Star Cruises may not be able to fetch a good price,” said OSK Investment Bank analyst Keith Wee.  

But, he added that the prospect for Resorts World was promising as its growing cash pile would naturally be a vehicle for Genting group to bid for more overseas ventures. 

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