Macquarie is pleased to list Biosensors, Genting Singapore, NOL and Yangzijiang warrants expiring in 2015, as well as DBS warrants with higher strikes to trade the higher DBS share price. The warrants expiring in 2015 allow investors to take a leveraged view on these names over a long period of time.

Here’s what Macquarie Equities Research’s (MER) has to say about the recent results of two of these companies, Genting Singapore and NOL.

Genting Singapore – growth pipeline approaching
The highlights of Genting Singapore’s strong set 2Q13 results reported on 6 August were
 
1) strong growth in VIP rolling chip volume (where Genting Singapore took market share from MBS);
2) confirmation that Genting Singapore was looking at the Japan growth opportunity (rather than another one of the Genting entities); and
3) management stating that there was another growth opportunity (other than Japan) visible in the next 6 – 12 months. The issue with the result was the low hold rate for a second quarter.
 
The highlight of Genting Singapore’s result was in the VIP segment where rolling chip volume grew 29%, allowing Genting Singapore to increase its market share to 49% from 44% in 1Q. This is admirable against a backdrop of lower credit extension and given the fact that Genting Singapore does not have a position in Macau (as its MBS does) – which would be a valuable feeder market. Management said the strong performance was driven by Genting Singapore being more comfortable with its customer base and being more efficient with credit extension and collection.
 
The mass market side volumes grew c.5% year-on-year (yoy), however Genting Singapore ceded market share from 46% in 1Q to 45% in 2Q. Management noted that local
visitation continued to be impacted by the Government cubs – and MER expects Genting Singapore is getting hit harder by this given its exposure to the local players. Management noted the focus is on growing the premium mass program which they are targeting at present.
 
On Japan, Genting Singapore confirmed that it was looking at the opportunity and that if casinos were legalised, it would look to enter Japan through the Genting Singapore entity. This is consistent with MER’s thinking, but was a key area of pushback from investors as the common concern was that Japan may take place through another Genting entity.
 
MER’s action and recommendation: MER retains its Outperform rating on Genting Singapore with a 12-month target price of $1.85. The stock closed at $1.38 yesterday.
 
NOL – underlying cost improvement
NOL’s 2Q13 net income announced on 7 August was a net loss of US$34.6mn. According to MER, if one-off gains from the disposal and realised gains from derivatives were excluded, underlying loss would have been around US$66m versus (vs.) a net loss of US$124m in 1Q13. MER also made the following analysis.
 
Liner business – cost savings start to emerge:Liner’s core earnings before interest and tax (EBIT) loss in Q2 was US$45m, an improvement vs. Q1 core EBIT loss of US$101m despite revenue per FEU falling 2.6% qoq. Much of this is due to NOL’s fleet renewal program, which lowers the company’s bunker consumption by 16% yoy. NOL estimates that their new cost savings program has already saved US$240m in the 1H 2013 and expects a similar level of savings in the second half.
 
Logistic business – seasonality impacts margin:The logistic division delivered a solid core EBIT of US$10m in Q2 2013, with a core EBIT margin of 2.9%. Revenue fell 2% yoy but was largely due to the timing differences in its automotive contract logistic business, which saw more temporary shutdowns in Q2. International services revenue growth remains robust at 7% yoy.
 
Freight rates trend in Q3 – discipline returning:During the analyst briefing, NOL indicated that they have seen more disciplined and resolved to maintain the Asia-Europe rate in Q3 after the Q2 price war. Transpacific peak season so far has very low visibility but the increase in capacity and cautious customers mean a lower spot rate in 2013.
 
MER’s action and recommendation:Despite a weaker rate environment quarter-on-quarter (qoq), NOL’s underlying operating performance has actually improved due to lower bunker consumption and other cost savings programs. This reflects MER’s core thesis that NOL’s fleet renewal program can bring down costs substantially and help improve the company’s long-term profitability. MER sees further cost savings in the 2H13 with more large vessels delivered to NOL’s fleet, which should offset the weak container market for the remainder of 2013.
 
MER has an Outperform rating on NOL with a 12-month price target of $1.35. The stock closed at $1.075 yesterday.

Source: Macquarie Research - 13 Aug 2013