Equities Hong Kong/China Initial Coverage Company Report NagaCorp (3918 HK) 18 August 2014 HK & China / Gaming Trawling for Bigger Fish We initiate coverage of NagaCorp with a Buy rating and target BUY price of HK$7.90. 2013-14 marks a transitional period for the Share Target company and we believe it is making astute moves in building Upside VIP growth through new initiatives, bolstering its mass market Price Price presence and expanding beyond Cambodia. All these should HK$6.48 HK$7.90 21.9% become earnings growth drivers in the long run. We forecast a 20% net profit CAGR over FY14-16E. (As of 15 Aug 2014) Igniting VIP business. NagaCorp has introduced a revenue-sharing program for junkets that effectively increases Eva Yip, CFA their commission from 1.7% to 2%. The new junket incentives (852) 2530 8226 should help bring in more serious, higher rolling gamers. We
[email protected] forecast a 25% CAGR for VIP rollings, boosted by additional VIP capacity and the new VIP initiatives attracting junket 52-week price range (HK$) 6.18-8.80 clients from Macau from 2015. Div yield % 5.19 Bolstering mass market presence. Growth in the mass market should be driven by higher visitor numbers and rising Latest Key Data spending by mass market players, supported by economic FF no of shares (m) 1,330 growth in Indochina. To cater for the mainland Chinese market, FF (%) 58.29 NagaCorp is working to improve travel services from the PRC FF market cap (HK$ m) 8,620 to Cambodia.