Thursday, July 3, 2008

Resort - 2008 Quarter Review


Received the below article from one of the fried:
Income Statement - 
Nothing major sticks out like a sore thumb here when comparing Q1/08 to Q1/07. 
Revenue grew slightly. 
Cost of sales marginal growth. 
Gross Profits okay. 
Other Income and expenses steady. 
Profit from Operations Good. 
Finance cost small and improved. 
No more big loss from Star Cruises. 
Taxes okay. 

In short, diluted earnings of 5 sen for Q1/08 looks okay.


Balance Sheet - 
There's no question Resorts Balance Sheet is very strong. 

Total cash recorded under Current Assets is $3.2 Bn. 

Under Fixed Assets, there is another $1.4 Bn of what comprises mainly quoted securities. The "other long term investments" recorded at $0.5 Bn does not reflect unrealized gains (per 2007 Annual Report, although I'm not sure what the value is today). 

However, the sharp eyes amongst you will have noticed that the sum of these 4 items have actually decreased from Q1/07. The question is where did that money go?

A quick look at the current liabilities showed 2 improvements. 
1. Trade payables dropped from $0.49 Bn to $0.405 Bn. 
2. Short Term borrowings also dropped from $0.18 Bn to $0.08 Bn.

Overall, Net Assets dropped slightly from $1.43 to $1.37, or from $8.2Bn to $7.9Bn, or $0.3 Bn drop. 

It is clear this is more than explained by the bigger drop in Fixed Assets from $6Bn to $5.4Bn, or $0.6 Bn drop. 

I view the drop in Fixed Assets favorably since Fixed Assets is normally a playground for valuation "games" amongst experienced accountants. Personally, I like to see RESORTS trimming its fixed assets. 

However, I note there is capital commitment to the tune of $0.66 Bn ($0.21 Bn contracted, $0.45 Bn Not yet contracted).

RESORTS has 5.9 Billion shares. Net Cash ($B) = 0.90 + 0.51 +1.11 + 2.13 - 0.08 = $4.57 Bn, or 77 sen per share.

Overall, nothing too worrying sticking out like a sore thumb. 


CASHFLOW STATEMENT
Operating Profit Before Working Capital Changes increased, which is good. 

They've used the cashflow to reduce their current liabilities (payables and loans) which is good.

RESORTS continue to invest $0.09 Bn in Q1/08 into Plant, Property Equipement like prior year.

They also bought back shares this year. 

My quick glance at the price charts show that Q1/08 prices are higher than Q1/07 prices, although one needs to closely examine at what prices they've bought back. Somehow, I don't think they are doing a good job here, since prices now (July 2) is at this year's low. Whilst buybacks are generally seen as positive because they reduce the number of shares outstanding and increase earnings per share, the price they pay to buy back is also very important. Still $0.03 Bn hardly dents the Net Cash, but something to watch out for.

VALUATION

Valuation is actually complex, but a very quick and dirty one is to look at current price of $2.50, less net cash of $0.77 = $1.73. If we assume yearly earnings is $0.05 x 4 = $0.20, then, this implies a business P/E of 1.73 / 0.02 = 8.6, which is getting in the region of a "value" buy. If exclude the net cash, the quick and dirty P/E is $2.50 / 0.2 = 12.5, which is also getting "interesting".


FUTURE PROSPECTS
Short term challenging but within the general view of "steady". Nothing terribly exciting, but not bad. Very solid business. Genting Highlands business is secularly cyclical, but when the good times comes back, business will be bomming bigger than ever before, although exactly when is unclear.

Disclaimer: As usual, buy/hold/sell at your own risk.

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