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.
- Ameristar Casinos
- Aristocrat Leisure
- Atlantic City
- Bally Technologies
- Boyd Gaming
- Caesars Entertainment
- Downtown Las Vegas
- Galaxy Entertainment
- Genting Singapore
- Golden Week
- International Game Tech
- Isle of Capri Casinos
- Lake Tahoe
- Las Vegas Locals
- Las Vegas Sands
- Las Vegas Strip
- Marina Bay Sands
- Melco Crown
- MGM China
- MGM Resorts
- Online Poker
- Penn National Gaming
- Pinnacle Entertainment
- Sands China
- Short Interest
- Shuffle Master
- SJM Holdings
- Slot machines
- Station Casinos
- Table games
- WMS Industries
- Wynn Macau
- Wynn Resorts
November 20 2012
Trends remain very strong - Following Naga’s release of unaudited operational highlights through the end of 3Q12 in early October, we believe gaming volume trends have remained at elevated levels on a y/y basis – especially in the higher-margin mass market and slot machine segments. Our revised estimates, which are detailed below, reflect these trends. Despite strong gaming volumes, we think that following the early October announcement Naga may have experienced a run of bad luck (low hold rate), which under normal circumstances might result in an estimates revision. However, we think that any weakness due to hold rate will likely be offset by the USD10mm upfront fee to be paid to the company in conjunction with the new slots deal at Saigon Palace.
October 08 2012
Recap - Tonight NagaCorp reported unaudited 9 month (through September 30) gaming volume performance data for its three primary segments. After adjusting for 1H results, we note that both the slot floor and mass market table games experienced significant gaming volume growth during 3Q12, which was above our implied expectations. We believe these high-margin segments continue to be driven by a host of factors that suggest this growth is sustainable. VIP rolling chip volume was softer than our expectations, although likely a function of Naga’s low base of customers (on a relative basis compared to regional casinos in markets like Macau) which can result in monthly / quarter volatility based on such things as frequency and timing of visits.
August 09 2012
1H12 recap - Yesterday, NagaCorp reported 1H12 results, which was followed by today’s conference call, with continued strength demonstrated across all of its operating segments. On an apples-to-apples basis (excluding the benefit of an $8mm upfront fee from one of its slot providers late in 1H11 that pulled revenue forward), revenue increased 27%, to $132mm. EBITDA of $65mm, was up 37% (ex-1H11 upfront fee) and compared to our estimate of $68mm, the $3mm variance owing to increased administrative and other operating expenses as the company ramps up its regional marketing efforts and takes on additional staffing for new gaming and non-gaming space at NagaWorld. Finally, net profit of $52.4mm was up 38% (ex-1H11 upfront fee), with reported EPS of 2.52 US cents.
Valuation –a discount to peers on superior growth - NagaCorp, while beginning to close the valuation gap, is trading at an average discount of ~30% discount to its Asian peer group average based on consensus 2013 EV/EBITDA estimates. Please see Figure 4 below for a detailed valuation matrix. Clearly there are a number of factors that are built in to this discount: country risk, limited liquidity, the stock is small cap, it is a single-asset story (for now) and investors are generally unfamiliar with NagaCorp.
As Naga continues to execute on its strategy and consistently records superior growth relative to its Asian and global gaming peers, we believe the company should trade closer to parity with its peers. While these peers are currently trading at 7.7x consensus 2013 EV/EBITDA, they have historically traded one or two multiple turns higher forward earnings (approximately 9x +). At 7x 2013 earnings, this would imply a share price of $5.00 for Naga, or 25% upside to its current price (HK$4.02) plus dividend yield of 8% based on an expected 60% payout ratio.
June 07 2012
We are raising our 2012 estimates for NagaCorp on continued strength across all three primary business segments: slots, mass market tables and VIP tables. We believe that all three segments are experiencing sequential volume growth, driven by increased headcounts and increased yield per customer. Importantly, we think further upside exists as recent marketing and technology initiatives take hold (e.g. Naga’s luxury bus service to Ho Chi Minh and the implementation of a Bally casino system), visitation to Cambodia and Phnom Penh continues to grow, and as Naga expands its VIP segment. Naga’s luxury bus service has only been operating for about two weeks, which we think will have a notable impact on 2H12 results.
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).
December 05 2011
We recently met with NagaCorp management during a visit to the company’s NagaWorld Integrated Resort in Phnom Penh, Cambodia. We remain excited about the Naga story, with what should be 70%+ EBITDA growth in 2011 and many levers in place to drive double-digit EBITDA growth in 2012 (and beyond).
Physical expansion - There are a number of current projects underway, as well as future projects that we believe management is contemplating, that will be key drivers of growth. Although NagaWorld’s main casino (ground floor / mass market) is capacity constrained, the property does have expansion space available on the first floor. In time for Chinese New Year (begins 23 January 2012), a new gaming/entertainment venue, Naga Rock Café, will open with about 250 slot machines and 12 table games. This space will be accessible via existing escalators and elevators to the 1st floor, as well as a dedicated exterior entrance currently being built. Also in time for Chinese New Year, Naga we believe Naga will open about half of the 220-room hotel block currently under construction with the balance likely opening in February. Looking ahead, we believe there are likely other mass market expansion opportunities that could be realized in currently under-utilized space as demand warrants.
Focus on increased visitation - Despite spiking inflation rates in Vietnam (~18% in 2011), Vietnamese visitation to Naga continues to increase (Vietnam represents Naga’s biggest customer base). To date, visitors from Ho Chi Minh typically take a privately-operated coach bus to Naga with Naga compensating the tour operator on a per-head basis. Beginning next year, Naga will start operating its own luxury bus fleet (five coaches) painted in Naga livery catering exclusively to its premium mass customers in Ho Chi Minh. Further, we expect the company to begin operating a similar number of buses locally, catering to local foreign-passport holding customers. Finally, and what we believe should likely be a 2H12 contributor, Naga will likely open dedicated sales offices in various major metro areas in Indochina. As we’ve noted on multiple occasions previously, we believe the Thai market could represent significant upside for Naga as it begins to penetrate this relatively wealthy and untapped market. We would expect any push into Thailand to be somewhat delayed due to the recent flooding.
June 14 2011
Project cost - The combined development costs for TSCLK and NagaCity Walk are expected to be US$369mm, comprised of $275mm for TSCLK and $94mm for NagaCity Walk. These cost estimates were arrived via valuation estimates from several professional firms, with an average of US$2,047 per square meter (in today’s dollars) in expected costs for the development. This is largely inline with current regional development costs of similarly scoped projects.
Dilution of minority shareholders and expected returns - Upon conversion of the convertible bonds issued to Dr. Chen (or share issuance at his option), minority shareholders will be diluted by approximately 42% (to 21% of shares outstanding, down from ~37%). It is important to note that the terms of the agreement between NagaCorp and Dr. Chen will only allow for the conversion upon completion and delivery of the project to NagaCorp. As such, shareholder dilution will immediately begin to be offset by increased earnings generated from the project.
June 13 2011
No longer a single-asset story - NagaCorp announced this evening a transaction with its CEO that will ultimately lead to major (and much needed) growth of the company’s footprint in Cambodia. Within a 3 to 5 year period, two projects will be developed next to the existing NagaWorld, which in turn will be acquired by Naga upon completion. The projects include 1) NagaCity Walk, a two-level pedestrian mall (linking the old and the new), and 2) an integrated-resort complex, which will include hotel rooms, retail, MICE, car park, and what we believe could ultimately be additional gaming space.
Transaction details - The two projects, valued at $369mm, are being developed by Naga’s CEO, Dr. Chen, who will bear all development, financing and cost inflation risk. It is important to note that Naga has no commitments as part of development process. Upon completion, Naga will acquire the projects from Dr. Chen, in exchange for shares / convertible bond (US$369mm at HK$1.84 / share, or ~1.56bn shares). Dr. Chen, via the SPVs detailed in the announcement, already holds the development parcels and has incurred US$31.2mm in costs on a life-to-date basis (land, master-planning and other development fees). Public float, now at 37% of shares out would go to 21%. When considering the scope of the new projects and future demand (continued tourism growth to Phnom Penh, increased penetration into Vietnam, plus marketing initiatives into Thailand and other ASEAN countries, etc.), we believe this project could double corporate-level EBITDA (in today’s dollars).
June 07 2011
Provides 1H11 performance update - This evening, Naga provided key financial metrics for the first four months of 1H11 (through April 30). The company noted revenues of $64.9mm, which implies 1H11 revenues of $97.4mm and inline with our Street-high estimate of $97.4mm. Net profit through April 30 was $21.6mm, which run-rates to $32.4mm as compared to our estimate of $31.8mm.
Upside potential to 1H11 - The metrics provided today would not include the $8mm one-time license fee that will ultimately be recognized by Naga from its new 3rd party slot machine operator. The one-time fee is not recognizable until Naga delivers the floor space to the vendor, which hasn’t happened yet (currently on track for delivery before June 30). Assuming Naga delivers the space prior to June 30, the company would recognize the $8mm in one-time fee revenue as part of its 1H11 results, which would therefore imply $105mm+ in revenues at the current run-rate.
Slot floor performing above our expectations - Naga also noted average win / day of $234 (prior to the revenue share split with its 3rd party operators). This compares favorably to our estimate of $220. Although we do expect slot win/day to be diluted after the opening of the new slot space (largely based on the likely lower traffic-volume of the area given its location above the main gaming floor), we are very encouraged by the current run-rate. Further, the future implementation of the company’s new slot-system (marketing, accounting, etc.) and TITO (cashless) gaming initiatives should drive win/day nicely over the medium term.
February 15 2011
Shares of NagaCorp were down 5.3% today, and are down 13.0% from their November peak, which we feel is unwarranted given continued solid results and compelling growth. Detailed herein, we believe Naga has several levers to its growth story, none of which have been negatively impacted by broader political (Thailand) or economic issues that have weighed on shares recently. Naga’s valuation remains very attractive, at just 5.1x 2011 EV/EBITDA, which compares to its Asian peers at 12.5x and its closest geographical peer Genting Malaysia at 6.7x.
NagaCorp (3918 HK): First thoughts on 2H10 results; beats expectations; analyst day and conference c
February 14 2011
Naga reported 2H10 revenues of $82.2mm (+52% y/y), which compared favorably to our forecast of $73.2mm (+12% to our estimate). We estimate Naga’s 2H10 EBITDA at $31.8mm (+52% y/y), and inline with our forecast. Finally, EPS was 1.23 US cents (+84% y/y) and about 5% above our forecast of 1.17 US cents.
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% )