via Khmer NZ
23 Aug, 2010 / GamblingCompliance / Daniel Macadam
Gaming analysts are split over the future prospects of Cambodian casino operator NagaCorp, after the company said it had shifted its focus away from junket-led business, spurning the sort of “explosive growth” seen by other Asian operators.
NagaCorp exceeded analysts’ expectations last week with an impressive 77.1 percent EBITDA increase to US$30.1m in the first half of the year. Shares in Hong Kong-listed NagaCorp rallied almost 30 percent on Wednesday, as the company also announced a 6.5 percent increase in net revenues to $67.8m.
Analysts at Las Vegas-based advisory firm Union Gaming praised the results and were optimistic about continuing growth at NagaCorp, which holds a monopoly to operate casinos within a 200km radius of the Cambodian capital Phnom Phen until 2035, pointing again to the company’s relative undervaluation compared to its Asian peers.
By contrast analysts at Hong Kong-based investment boutique Sun Hung Kai Financial dismissed NagaCorp’s growth story as “unexciting”, precisely because of its emphasis on mass market over junket players.
NagaCorp recorded EBITDA margins of 44.4 percent, up from 26.7 percent in the same period last year, and put the increase down to its increased focus on mass market play and mid-range junket players who come without commission earning middlemen.
“The solid results from our public floor and gaming machines business means that we are significantly less reliant on the junket business, where margins are relatively thin due to commissions payable to junket operators,” NagaCorp said in its half year report.
Junket business at the company’s flagship NagaWorld casino in Phnom Phen fell 41 percent year on year to $20.2m, and accounted for under a third of the company’s business, compared to 53.6 percent last year.
“Our focus is on sustaining our junket business on our terms, which includes a very conservative credit policy and relatively low table limit,” NagaCorp added.
“Our business remodelling strategy is focused on sustainable, predictable results for our shareholders, not the explosive growth many other gaming operators seek.”
Analysts have extolled the virtues of NagaCorp’s 1.7 percent junket commission, which offers junkets a higher rate than the 1.25 percent that Macau operators are currently capped at.
“Naga seems unwilling to capitalise on its competitive advantages of low costs and ability to offer high commissions to agents,” Eva Yip, analyst at Hong Kong-based investment boutique Sun Hung Kai Financial, said in a daily note.
“It only offers credit terms to one junket, and this lack of flexibility seems likely to limit growth potential.”
Yip added that NagaCorp’s switch of focus from junkets to local patrons, combined with a rolling back on large capital expenditure projects, could help boost earnings and generate cash flow, but made for unexciting growth prospects.
Sun Hung Kai Financial upgraded its forecast for NagaCorp’s full year 2010-11 earnings by 11 to 13 percent, and analysts at Las Vegas-based Union Gaming similarly raised their full year earnings forecast to predict EBITDA growth of 60 percent.
But Union Gaming’s Bill Lerner was more optimistic about the Cambodian locals market than Yip, arguing that the lucrative expat market was growing on the back of an influx of new foreign businesses into the country.
Only foreign passport holders are allowed to gamble in Cambodia, so a 42 percent increase in foreign company registrations so far this year will benefit NagaCorp’s flagship casino in Phnom Phen, according to Lerner.
According to NagaCorp’s report, the number of tourists visiting Cambodia increased by 11.5 percent in the first five months of the year to 1.1 million, and the casino operator continued to benefit proportionally from the tourism growth.
Cambodia’s visitation figures lagged behind many of its key Asian competitors for gaming tourists, though, as tourism increased 26.7 percent in Singapore and 51 percent in Malaysia in June.
Both Yip and Lerner pointed out that NagaCorp trades at a sizable discount to its Asian peers, with a 4.7 times 2010 EV/EBITDA consensus compared to the Asian group average of 12.5x.
Cambodia’s lower tourism figures are a factor, and Lerner listed country risk, NagaCorp’s reliance on NagaWorld, limited liquidity and investor unfamiliarity with NagaCorp as other reasons for the lower valuation.
“We believe that NagaCorp shares should trade at a discount to its Asian peers, although not at such a substantial discount,” Lerner said.
Instead, he suggested NagaCorp deserves “at least the same valuation as Genting Malaysia”, which trades at 6.8 times 2010 EV/EBITDA, because the Cambodian casino operator’s growth is not tied to increases in local or regional GDP unlike Genting Malaysia.
No comments:
Post a Comment