Union Gaming Research publishes company research and analysis on the global gaming industry. Our research analysts continually identify and analyze financial information and trends that affect the industry.
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May 29 2012
We recently attended the grand opening of Entertainment Gaming Asia’s (ticker: EGT) US$2.5mm Dreamworld Casino in Pailin, Cambodia, located on the border with Thailand about 4 hours SE of Bangkok and 5 hours NW of Phnom Penh. We also toured several border casinos in Pailin and Poipet, the latter being the location of the primary border-crossing between Thailand and Cambodia. Our visit gives us a high degree of conviction that: 1) smaller projects like EGT’s Pailin and Poipet casinos are likely to generate outsized returns and 2) the Thai opportunity for NagaCorp (3918 HK) is very significant.
January 09 2012
Positive profit alert announced; likely upside to estimates - This morning NagaCorp announced a positive profit alert with expectations for “a significant increase in net profit for the year ended 31 December 2011 as compared with that of the year ended 31 December 2010.” We believe that when audited results are reported towards the end of February, 2H11 revenue and net profit will likely show continued sequential improvement (despite the $8mm one-time revenue benefit to 1H11 from its new 3rd party slot vendor). While detailed segment information was not provided in today’s announcement, we believe that all relevant segments (VIP, mass, slots, non-gaming) are likely to show sequential revenue and profit growth.
Makes the argument for additional supply (Naga 2) - Importantly, we believe that continued strong results further make the case for additional gaming supply. This is reinforced by several factors:
1. Despite adding slots (and other electronic gaming devices) to the gaming floor on many occasions, the count of which more than doubled since the end of 2009, win / day has not been diluted
2. Despite the increase in minimum table games bets, the total volume of wagers has increased
3. Rolling chip volume continues to increase across all VIP tiers
4. All of this comes without the benefit of marketing to Thailand, Cambodia’s wealthier neighbor (relative to Vietnam), while also leaving plenty of room to grow its business from Vietnam (e.g. new luxury coach bus initiative); further, this comes from only a currently modest VIP business (stemming from conservatism rather than from a lack of demand), which we think will change as Naga ramps its VIP volume, which should also smooth out volatility
We note that Naga 2 (formally known as the “TSCLK Complex and NagaCity Walk”) and its corresponding financial structuring are subject to a shareholder vote at an Extraordinary General Meeting session to be held on 30 January.
NagaCorp (3918 HK): Visitation to Cambodia up 13.5% in October; benefits NagaWorld’s mass market seg
December 09 2011
Cambodia’s Ministry of Tourism reported a 13.5% y/y growth in October visitation. On a YTD basis, visitation has grown 15.4% and now exceeds 2.3 million people. Importantly, visitation to Cambodia via overland routes (primary method of arrival for nearly all visitors to NagaWorld) grew 18.3% y/y in October, which is inline with the YTD increase of 18.1%. We note that in October, Vietnam accounted for 23.2% of tourist arrivals to Cambodia (highest share). In addition, visitation from Vietnam grew 26.1% y/y in October, representing a 400bps increase over the country’s YTD average of 22.1%.
Forecasting a 40% y/y mass market GGR growth for Naga in 2H11 - In our view, the continued strength in inbound visitation to Cambodia, particularly from Vietnam, benefits NagaWorld’s mass market segment. We are currently forecasting a 40% y/y mass market GGR growth for Naga in 2H11 and a 62% y/y slot revenue growth. Furthermore, we expect double-digit revenue growth to continue in 2012, driven in part by increased visitation to NagaWorld and the launch of their own luxury shuttle service to/from Ho Chi Minh, as well as the opening of sales offices in various major metro areas in Indochina (please see our note from December 5th, 2011 titled “Positive outlook on 2012; many initiatives to drive growth).
February 11 2011
For most of the last five trading sessions, listed Macau casinos have sold off with an average un-weighted decline of nearly 8%. While quarterly results and company-specific drama has created noise, the group has notably under-performed broader emerging Asian markets which are off low-to-mid single-digits. Galaxy -16%, Wynn Macau -10%, Naga -8%, Sands China -6%, MPEL -4% and SJM -2%.
January 26 2011
NagaCorp announced a positive profit “warning” regarding its 2010 results, which we believe will be reported by the company around mid-February. In its profit “warning” the company noted a significant increase in net profit for the full-year 2010 on a y/y basis with 2H10 results broadly inline with 1H10 results.
November 17 2010
Today, the Cambodian and Thai governments signed an agreement that will allow for greater tourism between the two countries by eliminating visa requirements for travel. This visa exception program is expected to go into effect in 30 days, which should therefore have a positive impact on NagaCorp’s 1H11 operations. With Thailand now onboard, Cambodia now has visa exception agreements with most other relevant ASEAN countries (Indonesia, Laos, Malaysia, Philippines, Singapore, Thailand and Vietnam).
October 13 2010
We recently hosted a series of NagaCorp meetings and below we discuss our updated thoughts. We remain upbeat about the long-term growth prospects for the company detailed herein.
Following the completion of all components of NagaWorld in 2008 (the casino portion opened several years earlier), the company has largely repositioned itself as a mass market (public floor) focused operator, with its revenue mix shifting from 80% VIP / 20% mass to 30% VIP / 70% mass today. This transition is serving to smooth the volatility of earnings along with a much higher margin profile.
August 19 2010
NagaCorp (3918 HK) reported 1H10 results and notably exceed our expectations. Shares were up 19.8% overnight on the Hong Kong exchange. Net revenues were up 6.5%, to $67.8mm, while EBITDA increased 77.1%, to $30.1mm and EPS was 1.01 cents ( 82%). EBITDA margin was a healthy 44% ( 1,770 bps y/y) as the company continues to ramp its public (mass market) gaming floors.
We are forecasting 2H10 net revenues of $70.1mm ( 30%), EBITDA of $29.4mm ( 46%) and EPS of 2.06 cents. We have also revised our 2011 forecasts and are now modeling revenue of $154.5mm ( 12%), EBITDA of $68.8mm ( 16%) and EPS of 2.55 cents. Naga continues to dividend out a significant portion of its net profit (70%) in 1H10, and has ranged from 45% to 80% since 2006. We are forecasting a dividend yield of 10% in 2011.
August 05 2010
Entertainment Gaming Asia (EGT and formerly known as Elixir Gaming Technologies) reported 2Q10 results this morning, including a detailed look at their operations in Cambodia (consisting solely of their placements at NagaWorld).
All slots at NagaWorld are third party operated with NagaWorld generally receiving ~75% of revenues across about 800 machines. EGT operates about 3/4ths of the slots on the floor and noted that win/day was $195 during 1H10 (actually up y/y on nearly double the number of machines). We are modeling win/day of $140, which is lower than the average revenues generated on EGT machines in 1H10 (75% of $195 is $146).
Our slot revenue forecast for NagaWorld in 1H10 is $20.4mm ( 21%) assuming 800 slots and average win/day to NagaWorld of $140. Based on EGT’s results, there could be some upside to our expectations ($146 win/day vs. our estimate of $140 win/day).
March 17 2010
We formally launched research coverage of NagaCorp (3918 HK) on March 17, 2010. Copies of our 18-page report are available to clients of Union Gaming Research. Below is a brief bulleted list that conveys all of the reasons we like NagaCorp with more detailed summaries inside our report.
- Low tax story through 2018 (effective gaming tax rate of less than 2% vs. 39% in Macau) allows outsized returns on invested capital Extended monopoly / exclusivity through 2035
- Can sell subconcessions
- No long-term debt Shareholder friendly dividend policy – 50% of distributable profits (10% yield)
- Favorable VIP commission structure (1.7% vs. 1.25% in Macau)
- Well established relationships with junkets (41 operators, many of whom have Macau exposure)
- Caters to mid-tier VIP players, which takes some of the volatility seen at the very high end out of the business
- Building its direct VIP business with 1% rebate on rolling to players
- Working with air charter partners to generate increased direct VIP business Slot machines on the right track Low labor costs
- Complies with western-style anti money laundering (AML) standards Significant valuation discount to its Asian peers (63% )