SINGAPORE (Aug 21): UOB KayHian is upgrading Genting Hongkong to “hold” with an entry and exit price of US$0.24 and US$0.26 respectively on better 2H17 revenue and occupancy for Genting Dream.

“Although significant losses would persist through 1H18, we expect EBITDA losses to narrow sequentially before turning positive in 2019, partly reflecting the likelihood of the shipyard division achieving profitability,” says lead analyst Vincent Khoo in a Monday report.

A potential final dividend should also support its current valuation.

Khoo says he was pleasantly surprised by the sharp improvement in occupancy for Genting Dream in 3Q17. Genting Dream’s occupancy has improved to 125% for August versus 1H17’s occupancy of only 80%. Net ticket revenue per available lower berth day (ALBD) was at US$155 ($211) for Genting Dream, according to management.

As a comparison, US cruise operator NCL’s average occupancy and net ticket revenue per ALBD were at 106% and US$161 in 2016.

The 1 US cent interim DPS was another surprise, and Khoo reckons that Genting Hong Kong could also dole out a similar quantum for its final year.

However, earnings will remain depressed through 1H18, reflecting startup losses for World Dream, startup losses for its German shipyards, and continuing EBITDA losses for the Star Cruise and potentially, Crystal Cruise, says Khoo. Still, Genting Hongkong is expected to turn profitable in 2H18 as it ramps up production to meet deliveries in 2019-20.

As at 11.58am, shares in Genting Hongkong are trading at 27 US cents.