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. We expect growth in buy-ins to continue at a 12M daily turnover (HK$ m) 39.69 12M volatility (%) 37.80 rapid pace, with a 17% CAGR. 12M Hi/Lo (HK$) 6.18-8.80 Naga2/3 and entry into new gaming jurisdiction. Naga2 will PEG 2014-16E (x) 1.19 RoAE 2013 (%) 28.01 double NagaCorp’s capacity and additional traffic should fuel PBR 2014E (x) 3.02 earnings in the long term. NagaCorp also plans to enter a new Net debt/equity 2013 (%) Net cash gaming jurisdiction, Russia. Since the Russian project is still at the negotiation phase, we do not factor it in our target price, though we do expect it to become an additional long-term Performance (%) earnings driver and help NagaCorp diversify its growth profile. 1M YTD 12M Absolute 0.5 (20.7) (5.1) Valuation. Our target price is based on a sum-of-the-parts Relative to HSCEI (5.9) (23.3) (13.8) (SOTP) valuation of NagaCorp’s properties. We apply a 10x EV/EBITDA to NagaWorld’s FY15E EBITDA and 10x to Naga2’s FY19E EBITDA. We discount the enterprise value of Major Shareholder (%) Naga2 at 12.4% and have already factored the coming share Tan Sri Dr Chen Lip Keong 41.71 dilution into our target price. We initiate coverage with a Buy Free float 58.29 rating and a target price of HK$7.90. Investment Summary Price Chart FY-end Dec 31 2012 2013 2014E 2015E 2016E (HK$) Turnover (HK$ m) Turnover (US$ m) 278.8 344.9 410.3 503.3 596.7 Growth (%) 24.6 23.7 18.9 22.7 18.6 NAGACORP LTD HSI 9.60 1,800 Net Profit (US$ m) 113.1 140.3 153.0 186.0 219.2 8.60 1,600 Growth (%) 22.9 24.0 9.1 21.6 17.9 7.60 1,400 EPS (US cents) 5.4 6.3 6.7 6.9 8.2 6.60 1,200 Growth (%) 22.9 15.7 6.8 3.5 17.9 5.60 1,000 PER (x) 15.3 13.2 12.4 12.0 10.2 4.60 800 OCF/Share (US cents) 6.3 6.7 7.3 6.2 7.8 3.60 600 PBR (x) 4.3 3.2 3.0 2.8 2.8 2.60 400 EV/EBITDA (x) 11.5 9.2 8.1 6.7 5.4 1.60 200 0.60 0 DPS (US cents) 3.8 4.3 4.7 4.9 5.7 09/2011 05/2012 01/2013 09/2013 05/2014 Yield (%) 4.6 5.2 5.6 5.8 6.9 Sources: Company, CER estimates Sources: Bloomberg, CER estimates
China Everbright Research Limited Please read the analysts and company disclosure and the disclaimer in the last page
HK & CHINA / GAMING
Investment Thesis
Competitive franchise, well placed to benefit from growing Asian market
NagaCorp has a competitive business franchise compared with global listed casino stocks. Competitive advantages include monopoly operations and low operating costs. It is the only integrated casino-hotel operator within 200 km of Cambodia’s capital Phnom Penh and this status is guaranteed up to 2035, with no limit on the number of gaming tables. Costs are low due to the long amortization period for gaming licenses, low staff costs and a favourable tax rate which is equivalent to 2% of gross gaming revenues.
Figure 1: Cambodia offers NagaCorp a favourable tax rate
Mass VIP 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Cambodia Korea Philippines Singapore Malaysia Macau (foreigners only)
Sources: Companies and CER
In addition, Phnom Penh is only a short flight from highly populated countries such as Vietnam, Thailand and China. This unique geographical position should help it capture the growth potential of Southeast Asia’s gaming market. The number of casinos in the region is set to increase as more governments pass gaming legislation in a bid to boost tourism, but fast-growing local economies should ensure plenty of demand.
Figure 2: Cambodia is close to populous countries and with increasing accessibility
Beijing North Phnom Penh: 8 flights/week (7 hrs, 5 mins) Korea
Shanghai Phnom Penh: 7 flights/week (4 hrs, 15 mins) Siem Reap: 6 flights/week (3 hrs, 50 mins) Japan South Korea Guangzhou Phnom Penh: 14 flights/week (2 hrs, 45 mins) Siem Reap: 10 flights/week (2 hrs, 50 mins)
Nanning China Seoul Phnom Penh: 14 flights/week (5 hrs, 25 mins) Phnom Penh: 2 flights/week (3 hrs, 35 mins) Siem Reap: 14 flights/week (5 hrs, 25 mins)
Vientiane Phnom Penh: 10 flights/week (1 hr, 20 mins) Siem Reap: 4 flights/week (2 hrs, 55 mins) Taiwan Taipei Phnom Penh: 10 flights/week (3 hrs, 25 mins) Myanmar Laos
Yangon Philippines Phnom Penh: 2 flights/week (1 hr, 25 mins) Thailand Siem Reap: 2 flights/week (2 hrs, 10 mins) Hong Kong Phnom Penh: 10 flights/week (2 hrs, 35 mins) Vietnam Siem Reap: 4 flights/week (2 hrs, 45 mins) Phnom Penh
Bangkok Manila Phnom Penh: 56 flights/week (1 hr, 10 mins) Siem Reap: 3 flights/week (2 hrs, 45 mins) Siem Reap: 42 flights/week (1 hr, 10 mins) Hanoi Phnom Penh: 12 flights/week (3 hrs, 20 mins) Siem Reap: 35 flights/week (1 hr, 45 mins) Kuala Lumpur Singapore Malaysia Phnom Penh: 28 flights/week (1 hr, 50 mins) Siem Reap: 10 flights/week (2 hrs) Indonesia
Singapore Ho Chi Minh City Phnom Penh: 29 flights/week (2 hrs) Phnom Penh: 21 flights/week (45 mins) Siem Reap: 10 flights/week (2 hrs, 10 mins) Siem Reap: 35 flights/week (1 hr, 20 mins) 500 km
Sources: Company and CER
China Everbright Research Limited Please read the analysts and company disclosure and the disclaimer in the last page 2
HK & CHINA / GAMING
Igniting VIP business
NagaCorp had previously adopted a conservative approach to its VIP business, with low maximum bets and limited credit terms. The company revamped its VIP strategy after fundraising in 2013 helped strengthen its balance sheet.
First, it has introduced a revenue-sharing program for junkets that effectively increases their commission from 1.7% to 2%, much higher than the 1.25% in Macau. The new junket incentives should help bring in more serious, higher rolling gamers, particularly Chinese VIP players. This market is currently under-represented at NagaCorp, reflected in 90% of 1H14 rollings coming from Southeast Asia. The company is close to signing agreements with eight Macau junket operators, pending compliance checks with internal policies. Once these agreements are in place, the company’s new VIP initiatives should start bearing fruit in 2015.
Figure 3: NagaCorp’s VIP segment vs. Macau VIP segment Macau NagaCorp NagaCorp old US$ commission revenue sharing commission Comments model model model Rollings 100 100 100 Gross gaming revenue (GGR) @ win rate of 2.85% 2.85 2.85 2.85 Theoretical win rate for VIP business Macau: 1.25% cap on VIP rollings Junket commission 1.25 2.00 1.70 NagaCorp: 70% of net win/revenue new initiatives; 1.7% of rollings under old scheme Casino profit before gaming 1.60 0.86 1.15 NagaCorp shares more profit with junkets tax
Gaming tax 1.11 0.04 0.04 39% of revenue for Macau and 1.5% for NagaCorp
Casino profit 0.49 0.81 1.11 Assumes no operating costs, such as F&B Junkets have more incentive to bring in currently Junket sharing of GGR (%) 43.8 70.0 59.6 underserved higher-quality players Sources: Company and CER
Second, maximum bet per hand for VIPs has been increased from US$24k to US$200k, which should increase the pool and help mitigate volatility in the win rate. The theoretical win rate for VIP business is 2.85%, but NagaCorp recorded win rates of only 2.3-2.5% over FY09-12 with a rebound to 2.9% in FY13 and 3.6% in 1H14. Furthermore, although gross gaming revenue shifting towards VIP will increase commission costs and lower blended margin, the effect on the bottom line could be offset by a significant increase in volume. Even after its shift towards VIPs, NagaCorp’s EBITDA margin should remain higher than those of Macau casino operators.
Figure 4: FY13 EBITDA margin comparison across regions
60%
50%
40%
30%
20%
10%
0% NagaCorp Singapore Malaysia Macau Philippines
Sources: Bloomberg, companies and CER
China Everbright Research Limited Please read the analysts and company disclosure and the disclaimer in the last page 3
HK & CHINA / GAMING
NagaCorp is looking for higher-quality players, but its strategy emphasises mid-range VIPs, looking for a shoal of big fish rather than a handful of whales. Such a strategy should limit exposure to the types of VIP risks prevalent in other gaming markets since even with the increase in maximum bet they are equivalent only to Macau’s premium mass market. Unlike Singapore and Macau operators, NagaCorp does not require a very high check-in to enjoy VIP services.
Figure 5: Quarterly VIP rollings trend
(US$m) 1,400
1,200
1,000
800
600
400
200
0 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14
Sources: Company and CER
To cope with an anticipated increase in VIP patrons, NagaCorp is upgrading its facilities and is scheduled to complete its new VIP terminal by the end of 2014. The company aims for the new facilities to give players a unique experience. The new 47-table VIP hall was completed in July 2014 and a VIP rooftop area with 16 tables will be finished in 4Q14. Four new VIP private gaming suites with eight tables will be added in 2015. In addition, at the end of 2013 NagaCorp hired a new chief operating officer, who had previously been president of Las Vegas Sands’ properties in Macau and had helped the leading US casino operator establish a firm presence in the enclave. His experience should prove invaluable in executing the junket business revamp.
Figure 6: NagaCorp expansion pipeline Planned additions NagaWorld NagaWorld NagaWorld Naga2 (est. 2016 2013-16 expansion: Total at end 2012 at end 2013 completion) growth 2013-15 Gaming tables 138 172 63 200-300 435-535 153-211%
VIP: 57 VIP: 83 VIP: 146 Table split VIP: 63 N/A N/A Mass: 81 Mass: 89 Mass: 89
Electronic gaming machines 1,470 1,543 200 500 2,243 45%
Hotel rooms 660 700 N/A 1,033 1,733 148%
VIP private gaming suites N/A 7 4 50 61 771%
Retail space (sq m) 381 381 N/A 13,248 13,629 3,477%
MICE/Theatre facilities 750 750 N/A 4,000 4,750 533% (seating capacity)
Car park bay 60 60 100 533 693 1,055%
Sources: Company and CER
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HK & CHINA / GAMING
Bolstering mass market presence
The mass market segment consists of public-floor gaming tables and electronic gaming machines (EGMs). Public-floor gaming tables are the same as VIP tables but only open to foreign passport holders and locals holding foreign passports due to the conditions of NagaCorp’s casino license. EGMs are open to everyone, including local Cambodians. 40% of mass market customers are locals holding foreign passports, 20% are from Vietnam, and 40% are from other Asian nations. Minimum bets are smaller than for VIP and range from US$40 to US$300. However, since NagaCorp does not need to pay commissions to junkets in this segment, margins are much higher. There is also no credit risk.
Figure 7: NagaWorld’s mass hall overview Table min bet (US$) Target customer Public hall 40 Mass Saigon Palace 100 Premium mass Nagarock 200 Premium mass Aristocrat Private Club 300 Premium mass Sources: Company and CER
Growth in the mass market should be driven by higher visitation and rising spending by mass market players, supported by economic growth in Indochina. Cambodia remains a major tourist attraction and the country’s Ministry of Tourism forecasts international tourist arrivals will increase to 7.5m by 2020, which would result in a 9% CAGR over 2013-2020. Government plans to improve infrastructure to cope with the increase in visitor numbers include increasing handling capacity at the Phnom Penh and Siem Reap airports. NagaCorp will also play a role in improving travel services from China to Cambodia. The company will sell competitively priced F&B and hotel accommodation packages to China International Travel Service (CITS), the PRC’s largest travel agency. NagaCorp has also purchased two commercial aircraft, which it will lease to Bassaka Air, Cambodia’s newest airline. Bassaka will work with CITS to operate flights between Cambodia and second-tier Chinese cities, starting from October 2014. Furthermore, NagaCorp is providing Mandarin training to its staff and will revamp its F&B to include more Chinese food to cater for mainland tourists. All these measures should help attract more Chinese visitors to Phnom Penh.
Figure 8: Cambodia’s visitor growth has outpaced that of regional rivals
Australia Cambodia Korea Macau Malaysia Philippines Singapore 30%
25%
20%
15%
10%
5%
0%
-5% 2010 2011 2012 2013
Sources: Bloomberg, Cambodia Ministry of Tourism, and CER
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HK & CHINA / GAMING
Figure 9: Quarterly mass market buy-ins and EGM bills-in trend
(US$m) EGM Bills-in Public floor Buy-ins 350
300
250
200
150
100
50
0 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14
Sources: Company and CER
Once visitor growth to Cambodia starts to kick in, NagaCorp is well placed to benefit since NagaWorld is the only scalable casino in the Indochina region. The only competing gaming facilities nearby are small casinos near the borders with Vietnam and Thailand. NagaCorp is therefore a key beneficiary of promising economic growth and rising individual wealth in Indochina, which should in turn result in greater demand for casino gaming and increasing average bet sizes. In comparison with developed markets, Southeast Asian nations are expected to grow faster in terms of population and GDP.
Figure 10: Tourist arrivals to Cambodia are rising rapidly
('000) International tourist arrivals Tourist arrivals from PRC 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2007 2008 2009 2010 2011 2012 2013
Sources: Cambodia Ministry of Tourism and CER
Figure 11: Cambodian tourist arrival growth from the PRC is outpacing overall growth
International tourist arrivals Tourist arrivals from PRC 50%
40%
30%
20%
10%
0%
-10% 2007 2008 2009 2010 2011 2012 2013
Sources: Cambodia Ministry of Tourism and CER
China Everbright Research Limited Please read the analysts and company disclosure and the disclaimer in the last page 6
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Figure 12: PRC tourists are an increasing presence in Cambodia Figure 13: Tourist arrivals by country in 2013
12% Vietnam 10% Others 20% France 26% 8% 3% China Russia 11% 6% 3% Kor e a 4% Australia 10% 3% US 2% 4% Japan 5% Thailand Lao PDR 0% 5% 10% 2007 2008 2009 2010 2011 2012 2013
Sources: Cambodia Ministry of Tourism and CER Sources: Cambodia Ministry of Tourism and CER
Figure 14: Asian nations are growing faster in population … Figure 15: … and GDP
Developed China Cambodia Indonesia Laos G10 Asia Indonesia Singapore regions Philippines Malaysia Vietnam Thailand Malaysia Myanmar Philippines Thailand Vietnam 7.0% 2.0% 6.0% 1.5% 5.0%
1.0% 4.0%
3.0% 0.5% 2.0% 0.0% 1.0%
-0.5% 0.0% 2010-2015 2015-2020 2020-2025 2025-2030 2014 2015 2016
Sources: United Nations and CER Sources: Bloomberg and CER
Naga2/3 and entry into new gaming jurisdiction
NagaCorp has run its Cambodian casino monopoly successfully for 19 years and will cater for growing demand for gaming and entertainment facilities by building a second casino resort, Naga2. The opening of Naga2 in 2016 will double NagaCorp’s capacity and additional traffic should fuel earnings in the long term. Construction started at the end of 2012. The new facility will be similar in size to NagaWorld and feature 200-300 tables, 500 gaming machines, 50 VIP suites, more than 1,000 hotel rooms, and retail/MICE facilities. The company is also constructing a walkway, NagaCity Walk, to link NagaWorld and Naga2, and this will open in mid-2015. NagaCity Walk will house Phnom Penh’s first luxury mall and broaden NagaCorp’s retail footprint. It has already signed up leases for retail spaces at NagaCity Walk, with CITS-owned China Duty Free Group as the anchor tenant.
Naga2’s capex of US$369m is being financed by CEO Dr Chen. Once construction is completed, the project will be acquired by the listed company for US$369m through issuing a total of 1,566m new shares to Dr. Chen at HK$1.8776/share. The new shares will represent 41% of the enlarged share capital. This arrangement is aimed at eliminating cost overruns at the listed company level, which have already been observed in the construction so far. Another issue was that NagaCorp was not able to finance the Naga2 project at
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HK & CHINA / GAMING the time since the capex was equivalent to its entire equity base back then.
Figure 16: Locations of NagaWorld and its upcoming expansion projects
Site area: 9,519 sq m (2.4 acres) Samdach Hun Sen Park GFA: 13,248 sq m NagaCityWalk (Retail)
Naga2 Complex Buddhist Institute NagaWorld Site area: 16,675 sq m (4.1 acres) GFA: 113,307 sq m Site area:
7,766 sq m (1.9 acres) Street Assembly National
GFA: Sen Hun Samdech 110,105 sq m National Ministry of Foreign Assembly Affairs
Australian Embassy
Sources: Company and CER
At the interim-results presentation, management revealed plans for a third complex, Naga3, which is still at the preliminary stage. Management targets Naga3 to become an iconic local tourist landmark, which it believes Phnom Penh currently lacks.
Looking further afield, NagaCorp plans to enter a new gaming jurisdiction, Russia. The company has agreed to invest US$350m in a 21.6-hectare gaming and resort development project near Russia’s border with northern China. The resort will be located in the Integrated Entertainment Zone (IEZ) close to the eastern Russian port city of Vladivostok in the Primorye Region. The IEZ is one of six areas that the government has designated as casino gaming zones. These are the only areas in the country where casino gaming is legal. The Russian government has four tenders and has already awarded two of them: one to NagaCorp and the other to Hong Kong-listed Summit Ascent (0102 HK, NR). NagaCorp’s planned casino hotel complex will consist of 200 gaming tables, 500 electronic gaming machines, 2,000 hotel suites, multi-purpose MICE facilities, and 10 F&B entertainment outlets. 1,000 of the hotel suites will be sold to third parties before opening, raising estimated total proceeds of US$100m, and then leased back to the company.
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Figure 17: NagaCorp’s proposed development for its Vladivostok casino projects Key information Details Proposed minimum investment US$350m. Casino hotel gaming facilities 200 gaming tables and 500 EGMs. 2,000 hotel suites in total, of which 1,000 will be pre-sold under sale and leaseback arrangements. Other facilities Multi-purpose MICE facility with seating capacity for more than 2,000 guests. 10 F&B and entertainment outlets. Site leasehold is for 15 years, ending 20 July 2025, subleased for 12 years from the Registered Lessee of the Land (CDPT), with an annual rental payment of US$79k. Financial obligations NagaCorp will acquire the freehold interest in the land on completion of the prevailing state land valuation. One-time payment of US$138k when the state registers the Sublease Agreement. NagaCorp will put up a bank guarantee of US$12m. Monthly gaming tax of RUB125,000 (US$3,600) per gaming table and RUB7,500 (US$215) per EGM. Tax regime 20% corporate tax rate on non-gaming operations. Sources: Company and CER
According to a study by consultancy Global Market Advisors, the IEZ is expected to generate gross gaming revenue of US$1.1bn in its first year of full operations, likely in 2018, and this will grow to an annual total of US$5.2bn within 10 years. Vladivostok has a highly favourable geographical location for attracting visitors from northern Asia, with Beijing, Korea and Japan less than three hours away by plane, while visa policies are also looser than those for Macau. Although other casinos are also in pipeline, such as in Korea, the rise of Macau’s gaming industry has demonstrated that additional high-quality supply has helped stimulate demand, with gross gaming revenues in the enclave growing rapidly in recent years along with increases in table capacity.
Figure 18: Catchment area for Vladivostok casino projects covers North Asia Russia
Mongolia 1,000 km from Vladivostok
Pyongyang Harbin Beijing 2 flights/week (1 hr, 40 mins) Primorsky 2 flights/week (2 hrs, 40 mins) Krai Changchun Vladivostok Sapporo
Shenyang North Beijing Korea Seoul Pyongyang Sendai Tianjin 22 flights/week (2 hrs, 25 mins) Niigata
Seoul Japan Busan Jinan 1 flight/week (2 hrs) Tokyo South Hiroshima Osaka Busan Zhengzhou Hamamatsu Xi’an Korea Fukuoka China
Shanghai Kagoshima Wuhan Hangzhou Chongqing 2,000 km from Vladivostok Populations Changsha Vladivostok/Artem 0.7m Primorsky Krai 1.6m Fuzhou Tokyo Chinese population within 1,000 km 45m 2 flights/week (2 hrs, 45 mins) Chinese population within 2 hr flight 132m Taiwan Hong Kong Hong Kong 5 flights/week (4 hrs, 45 mins)
Sources: Company and CER
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HK & CHINA / GAMING
Figure 19: Macau GGR has grown along with the number of casino tables…
No. of tables (L) GGR (R) (US$m) 6,000 13,000 5,500 5,000 11,000 4,500 9,000 4,000 3,500 7,000 3,000 2,500 5,000 2,000 3,000 1,500 1,000 1,000 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14
Sources: DICJ and CER estimates
Figure 20: … with high correlation
GGR (US$m) 13,000 R2 = 0.7216 11,000 9,000 7,000 5,000 3,000 1,000 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 5,500 6,000 No. of tables
Sources: DICJ and CER estimates
Figure 21: Mainland Chinese visitors to Macau by province/municipality, 2013
Others Chongqing 38% Guangdong 1% 44%
Tianjin 1% Shanghai 3% Fujian Beijing 4% Zhejiang 2% Hunan 3% 4% Sources: DICJ and CER
In view of Russia’s recent geopolitical tensions, NagaCorp will invest in its IEZ project in stages, with US$50m earmarked for the first phase. The project will not begin operations until at least 2018. We assume the whole investment can generate 30% ROIC, the high end of new Cotai casino projects, and value the project at 8x EV/EBITDA, equivalent to Summit Ascent’s FY16E consensus EV/EBITDA. Since Summit Ascent targets to start operations much earlier, in 3Q14, we discount our NagaCorp IEZ valuation accordingly to reach a present value of HK$1.07 per share. Since the Russian project is still at the negotiation phase, we do not factor it into our target price, though we do expect it to become an additional long-term earnings driver and help NagaCorp diversify its growth profile.
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Financials
We forecast a revenue CAGR of 22% over FY14-16E, led by solid growth in the VIP market. We estimate VIP rollings to post a 25% CAGR, boosted by the new VIP initiatives attracting junket clients from Macau from 2015 as well as new VIP capacity. In the mass market, we expect growth in buy-ins to continue at a rapid pace, with a 17% CAGR supported by rising mass market spending and visitor numbers. Since we expect the pool to expand, we assume the VIP win rate can be sustained at 3.1%. This implies that the blended win/table/day will be US$3,500 in FY14E. We see plenty of room for improvement given the average of US$21k achieved by Macau casino operators.
Figure 22: NagaCorp & Macau win/table/day
(US$) Macau NagaCorp 25,000
20,000
15,000
10,000
5,000
0 2010 2011 2012 2013
Sources: Company, DICJ and CER
We forecast slot machines to resume growth in 2H on rising Cambodia tourist visitor numbers and an increase in the number of slot machines. We forecast total EGM bills-in to record a 12% CAGR over FY14-16E.
Figure 23: NagaCorp revenue trend and FY14E revenue breakdown
(US$m) Mass market VIP market Non-gaming 700 600 500 400 300 200 100 0 FY13 FY14E FY15E FY16E
Sources: Company and CER estimates
Figure 24: FY14E revenue mix Non-gaming 5% Mass market: public floor gaming tables 26%
VIP market 41% Mass market: electronic gaming machines 28%
Sources: Company and CER estimates
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In view of the greater contribution from lower-margin VIP business, we expect gross margin to decline and stabilise at around 69% in FY17E. VIP gross margin was 39% in 1H14, down from 41% in 1H13, as the company had already started paying bigger commissions to lure higher-quality players. We believe the new revenue sharing incentive scheme will not have an adverse effect on profitability since commissions are now based on net win. Should the company suffer from adverse luck and record a lower-than-expected win rate, it would pay less commission, though it would also not benefit from any upside if the win rate is higher than expected. Mass-market gross margin improved slightly to 95% in 1H14. No commission expenses are incurred for this segment.
Figure 25: NagaCorp gross margin trend
74% 73% 72% 71% 70% 69% 68% 67% 66% 65% FY12 FY13 FY14E FY15E FY16E FY17E
Sources: Company and CER estimates
Figure 26: Revenue sharing incentive scheme protects against downside if win rate is lower than expected Win rate of 3.5% Standard win rate of 2.85% Win rate of 2.5% Old scheme New scheme Old scheme New scheme Old scheme New scheme
1.7% commission 1.7% commission commission 1.7% commission commission based commission based rate based on rate based on based rate based on on 70% of GGR on 70% of GGR rollings rollings on 70% of GGR rollings US$100 bet 100 100 100 100 100 100 Win rate 3.50 3.50 2.85 2.85 2.50 2.50 Junket 1.70 2.45 1.70 2.00 1.70 1.75 commission Gaming tax at 0.05 0.05 0.04 0.04 0.04 0.04 1.5% of net win Casino profit 1.75 1.00 1.11 0.81 0.76 0.71 Profitability (%) 49.93 28.50 38.85 28.50 30.50 28.50 Source: CER estimates
Since the company is in an expansion phase, costs as a percentage to revenue will continue at a high level for the coming three years. We estimate EBITDA margin to hover around 47-49% over FY14-16E.
Figure 27: NagaCorp EBITDA margin trend
50%
49%
48%
47%
46%
45% FY12 FY13 FY14E FY15E FY16E FY17E
Sources: Company and CER estimates
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We assume that NagaCorp can maintain its preferential gaming-tax treatment. Currently, it pays a fixed monthly tax of US$416k, which will increase 12.5% p.a. until 2018. This implies an effective tax rate of 3%-4% for FY14-16E. NagaCorp is currently discussing its post-2018 tax arrangements with the government.
We factor in the company issuing new shares to Dr Chen to acquire NagaCity Walk at the end of 2014 and Naga2 at the end of 2016. Even so, we forecast a two-year EPS CAGR of 10%. We do not factor in any contribution from the Russian casino project yet. Given the company’s substantial cash pile, we expect it will be able to maintain a 70% dividend payout ratio.
NagaCorp has been debt free since listing. As at the end of 1H14 it had US$184m of cash, down from US$252m at the end of 2013. The company bought some notes linked to a China bond USD hedge index in 1H14 and expects to dispose of these within 12 months. Its upcoming asset acquisitions will expand the asset base by 23% in FY14 and 41% in FY16.
The company has generated positive operating cash flows since 2007 because it provides only limited credit lines to junkets. Given its firm operating cash flows, we believe it will be able to fund capex of around US$30m p.a. internally, mainly for facility upgrades and maintenance.
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Valuation
Our target price is based on a sum-of-the-parts (SOTP) valuation of NagaCorp’s properties. We apply a 10x EV/EBITDA to NagaWorld’s FY15E EBITDA and also 10x to Naga2’s FY19E EBITDA, assuming it can fully ramp-up operations in FY19 after opening in 2017. We discount the enterprise value of Naga2 at 12.4% and have already factored the coming share dilution into our target price. We initiate with a Buy rating at a target price of HK$7.90.
Figure 28: NagaCorp SOTP valuations Note (US$ m) NagaWorld operation 10x FY15 EV/EBITDA 2,366 NPV of Naga2 10x FY19 EV/EBITDA, discounted at 12.4% 1,121 Net cash at end of FY15E 391 Total equity value 3,877 Fully diluted no. of shares (m) 3,848 Value per share (HK$) 7.90
Sources: Company and CER estimates
Figure 29: DCF sensitivity analysis Valuation discount to Macau operators Discount rate 40% 30% 20% 10% 0% (%) 10.9 6.19 7.08 7.98 8.88 9.78 11.4 6.15 7.05 7.94 8.83 9.73 11.9 6.12 7.01 7.92 8.79 9.68 12.4 6.09 6.98 7.90 8.74 9.63 12.9 6.06 6.94 7.86 8.70 9.58 13.4 6.03 6.91 7.78 8.65 9.53 13.9 6.00 6.87 7.74 8.61 9.48
Source: CER estimates
Our target multiple is a 20% discount to the Macau gaming operators’ average of 12x given NagaCorp’s smaller scale and country risk associated with Cambodia.
NagaCorp has undergone a re-rating similar to Macau gaming operators since 2012. We believe this has been driven by growing investor confidence in the company’s strategy and consistent earnings growth delivery, as well as improving stock liquidity. Macau gaming operators have undergone a de-rating this year though amid a slowdown in revenue growth.
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Figure 30: NagaCorp’s 12M forward EV/EBITDA vs. Macau average
(X) NagaCorp Macau average 18
16
14
12
10
8
6
4
2
0 Jan 12 Jul 12 Jan 13 Jul 13 Jan 14 Jul 14
Sources: Bloomberg and CER estimates
Figure 31: NagaCorp’s historical valuation discount/premium to regional players
Macau Malaysia Singapore Korea Philippines
60%
40%
20%
0%
-20%
-40%
-60%
-80%
-100% Jan 12 Jul 12 Jan 13 Jul 13 Jan 14 Jul 14
Sources: Bloomberg and CER estimates
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Figure 32: NagaCorp’s 12M forward PER and EV/EBITDA trends PER EV/EBITDA
PER Average +1 s.d. -1 s.d. EV /EBITDA Average +1 s.d. -1 s.d. (X) (X) 12 14 11 10 12 9 10 8 8 7 6 6 5 4 4 Jan 12 Jul 12 Jan 13 Jul 13 Jan 14 Jul 14 Jan 12 Jul 12 Jan 13 Jul 13 Jan 14 Jul 14
Sources: Bloomberg and CER estimates Sources: Bloomberg and CER estimates
Figure 33: NagaCorp and Macau casino operators 3-year PER and EV/EBITDA range PER EV/EBITDA
3-year 12M fwd PER range 3-year 12M fwd EV/EBITDA range (X) Current forward PER (X) Current 12M fwd EV/EBITDA 3-year average 12M fwd PER 3-year average 12M fwd EV/EBITDA 27 27 22
22 22 17 17 17 12 12 12
7 7 7
2 2 2 NagaCorp Melco SJM MGM Sands Galaxy Wynn Crown China China Macau NagaCorp Melco SJM MGM Sands Galaxy Wynn Crown China China Macau
Sources: Bloomberg and CER estimates Sources: Bloomberg and CER estimates
Figure 34: NagaCorp and Macau 2013 and YTD share price performance 2013 Performances 2014 performance YTD 160% 10% 140% 5% 120% 0% 100% -5% 80% -10% 60% -15% 40% -20% 20% -25% 0% -30% -20% HSI HSI SJM HSI HSI SJM HSCEI Galaxy HSCEI Galaxy NagaCorp MGM China NagaCorp MGM China Sands China Wynn Macau Melco Crown Sands China Wynn Macau Melco Crown Sources: Bloomberg and CER estimates Sources: Bloomberg and CER estimates
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Figure 35: Peer comparison Last Mkt 3M FY1 EPS FY2 EPS FY1 EV/ FY2 EV/ Div Price cap avg T/O Year growth growth FY1 FY2 EBITDA EBITDA yield Name Ticker CCY (LC) (US$m) (US$m) end (%) (%) PER (X) PER (X) (X) (X) (%) NagaCorp 3918 HK HKD 6.48 1,908 5.3 Dec 13 6.8 3.5 12.4 12.0 8.1 6.7 5.2 Macau Gaming Operators Sands China 1928 HK HKD 53.25 55,414 145.7 Dec 13 34.2 20.1 18.6 15.5 15.5 13.1 3.2 Galaxy 27 HK HKD 60.05 32,871 106.9 Dec 13 27.2 25.2 19.8 15.8 15.9 12.6 0.0 Wynn Macau 1128 HK HKD 31.20 20,914 29.9 Dec 13 4.9 7.3 20.1 18.7 16.1 14.9 3.2 Melco Crown MPEL US USD 29.17 16,204 138.9 Dec 13 32.1 20.1 19.1 15.9 12.8 10.2 1.1 SJM Holdings 880 HK HKD 19.92 14,536 22.9 Dec 13 6.2 9.0 13.5 12.4 9.3 8.5 3.6 MGM China 2282 HK HKD 26.35 12,920 22.3 Dec 13 18.4 9.8 15.9 14.5 13.3 12.1 2.0 Average 20.5 15.3 17.8 15.5 13.8 11.9 2.6
Asian Gaming Operators Genting Singapore GENS SP SGD 1.26 12,394 13.1 Dec 13 10.3 7.8 22.1 20.3 10.8 10.2 0.8 Genting Bhd GENT MK MYR 9.90 11,665 5.6 Dec 13 10.0 9.9 17.7 16.1 7.2 6.8 0.0 Genting Malaysia GENM MK MYR 4.38 7,875 3.9 Dec 13 7.2 10.4 15.8 14.7 8.4 7.8 1.9 Kangwon Land 035250 KS KRW 34,850 7,322 15.1 Dec 13 N/A N/A N/A N/A 10.7 9.9 2.1 Alliance Global AGI PM PHP 26.00 6,113 7.2 Dec 13 13.9 9.8 14.8 13.0 9.5 8.2 1.5 Paradise 034230 KS KRW 36,350 3,247 22.0 Dec 13 13.7 25.4 24.4 21.1 19.3 14.8 0.3 Travellers RWM PM PHP 8.26 2,979 4.2 Dec 13 26.6 3.1 19.0 14.9 10.2 8.9 0.0 BLOOM Bloomberry Resorts PHP 11.20 2,715 1.9 Dec 13 59.1 22.2 27.1 17.0 14.8 10.1 0.0 PM Grand Korea Leisure 114090 KS KRW 41,750 2,536 10.9 Dec 13 15.3 13.3 19.1 16.5 10.0 6.9 2.8 Melco Crown Philippines MCP PM PHP 11.46 1,289 1.4 Dec 13 N/A 50.6 N/A 18.8 33.9 8.8 0.0 Belle Corp BEL PM PHP 5.02 1,214 1.2 Dec 13 155.9 27.7 31.2 12.2 25.7 10.7 0.4 Average 19.8* 18.0 21.3 16.5 14.6 9.4 1.4
Sources: Bloomberg and CER estimates, * excluding outlier
1H14 Results
1H14 revenue rose 26% YoY, led by a 61% YoY increase in the VIP market. Public-floor table buy-ins and VIP rollings increased 22% YoY and 20% YoY respectively. The positive results were attributed to higher business volume from mass market gaming tables and the successful revamp of the VIP market strategy through a new gaming revenue sharing scheme for junkets. VIP win rate improved significantly from 2.6% to 3.6%. As a result, total VIP gaming revenue increased 61% YoY to US$86m. EGM bills-in grew only 3% YoY as a result of a temporary drop in visitors due to refurbishment works on the gaming floor, the negative impact of strikes early this year in Cambodia, and social unrest in Thailand.
Gross profit margin dropped by 4 ppts to 69% in 1H14 as the sales mix shifted towards the lower-margin VIP market. Other operating expenses rose 88% YoY, faster than revenue growth due to an increased head count and the staff payroll rising 35% YoY. Management attributed the substantial increase in payroll expense to more staff incentives, aimed at improving customer service and reducing staff turnover. EPS rose 3% YoY to US¢2.96. An interim DPS of US¢2.07 was declared, representing a payout ratio of 70%.
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Figure 36: 1H14 results highlights US$ ’000 1H13 1H14 YoY Revenue 151,644 191,000 26% COS (40,099) (58,302) 45% Gross profit 111,545 132,698 19% Other income 398 748 88% Administrative expenses (20,394) (23,232) 14% Other operating expenses (26,141) (39,655) 52% PBT 65,408 70,559 8% Income tax (2,556) (2,938) 15% PAT 62,852 67,621 8% EPS (US¢) 2.87 2.96 3% DPS (US¢) 1.93 2.07 7%
KPIs Public floor tables buy-ins 192,228 235,156 22% Electronic gaming bills-in 557,867 574,905 3% VIP rollings 2,013,915 2,422,040 20% Gross gaming revenue 141,718 180,337 27% VIP 53,342 86,024 61% Mass market tables 44,346 53,117 20% Mass market machines 44,030 41,196 (6%) Non-gaming revenue 9,926 10,663 7%
Gross margin (%) 73.56 69.48 (4.08 ppts) EBITDA margin (%) 51.18 45.33 (5.85 ppts)
Sources: Company and CER estimates
Figure 37: 1H14 revenue breakdown
Non-gaming 6% Mass market: public floor gaming tables 28%
VIP market 44% Mass market: electronic gaming machines 22%
Sources: Company and CER
Figure 38: VIP market breakdown 1H13 1H14 Rollings Rolling Win rate Rollings Rolling Win rate
(US$ m) share (%) (%) (US$ m) share (%) (%) Incentive program 659 33 2.4 1,671 69 3.4 Commission based 632 31 2.3 359 15 2.2 Direct VIP 723 36 3.2 392 16 5.4 Total 2,014 100 2.6 2,422 100 3.6 Sources: Company and CER
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Catalysts
Stronger than expected revenue and EBITDA growth.
Expansion into other countries to diversify business.
Rapid ramp up of VIP business serving Chinese patrons.
Russian casino market developing faster than expected.
Risks
Losing casino license. NagaCorp’s casinos operate under an exclusive gaming license granted by Cambodia government. Losing this license or its exclusive rights is unlikely, but would adversely affect operations.
Anti money laundering measures. Casinos handle substantial amounts of cash and are therefore vulnerable to being used for money laundering. Any non-compliance to Financial Action Task Force (FATF) recommendations may result in license suspension.
Increasing regional competition. More neighbouring countries are building casino resorts and the gaming market is becoming more competitive. The pie is expanding, but NagaCorp’s slice may shrink.
Political unrest or economic downturns in Asia. Visitor growth and tourist receipts are reliant on continued Asian economic growth. Political unrest in neighbouring countries may also affect Cambodia tourism growth.
Delays in opening Naga2 and Russian casino, which would otherwise become long-term growth drivers for the company.
Changes in Cambodian tax regime. NagaCorp will enjoy favourable gaming tax treatment until 2018. The company is negotiating with the government to extend this again, having already done so before in 2013. A significant jump in gaming tax could erode its competitive advantage and profitability.
Share placement overhang. Major shareholder Dr Chen’s stake will rise to 65% from 41.7% once NagaCorp acquires Naga2. He may need to sell down his stake to maintain NagaCorp’s free float and this could become an overhang for the stock. Dr Chen sold a 4.43% stake in November 2012 and a 10.28% stake in April 2012 to increase the stock’s free float.
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Company Background & History
NagaCorp operates NagaWorld, the only integrated casino-hotel in Cambodia’s capital city of Phnom Penh. The company holds a 70-year casino licence until 2065 and a 40-year casino monopoly within a 200-km radius of Phnom Penh until 2035. In 2013, mass market, VIP market and non-gaming contributed about 55%, 39% and 6% of total revenue respectively.
NagaCorp was found by Tan Sri Dr Chen. He was granted the casino license in 1995 and started casino operations on a barge anchored on the Bassac River the same year. The company was awarded its current land site in 2000 and relocated the casino operations from the barge to the current site in 2003, where it now operates the NagaWorld complex. NagaCorp listed in Hong Kong in October 2006.
Figure 39: Shareholding structure
Ameriprise Financial Inc Tan Sri Dr Chen Lip Keong Public Shareholders
5.54% 41.71% 52.75%
NagaCorp
Sources: HKEx and CER
Figure 40: Porter’s five forces
Bargaining power of suppliers Weak to medium. The casino Bargaining power license is granted by Cambodia’s of customers government. Other major suppliers include gaming machine providers, Weak. NagaWorld is the only VIP junkets and labour. There are scalable casino in Phnom many gaming machine providers and Penh and enjoys monopoly junket operators globally. On salaries, operations. NagaCorp’s compensation is well above the national minimum wage. Intensity of Rivalry
Weak to Medium. The nearest competitors are in neighbouring countries or small casinos near Cambodia’s borders. They are unlikely to cannibalise NagaCorp’s business since the gaming pie is growing steadily. The Macau experience bodes well for growth prospects.
Threat of new entrants Threat of substitutes Weak. NagaCorp has a well- established exclusive gaming Weak. Casinos are the only license in Cambodia, dating legal form of gambling in back to 1999. The Cambodia and have no close government has strongly substitutes. The only enforced shutdowns of alternative would be other unlicensed casinos and slot types of entertainment. machine operators.
Source: CER
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Figure 41: SWOT analysis
Strengths Weaknesses
Monopoly casino operation in Cambodia with no table restriction and favourable tax structure. Strong balance sheet; expected to remain net cash by the end of FY14. Small-scale operator and may not be able to attract big Close relations with current government. high-rollers. Favourable location. Cambodia is also home to Angkor Wat, Relies on junkets for VIP operation. If the company’s terms a unique sightseeing destination in Asia. And Phnom Penh is become less attractive it may lose business from junkets. within three hours flights from SE Asia. Finances depend on luck, which cannot be controlled. Low working capitalS and capex requirements. Only limited W credit is provided to junkets. This allows for strong free cash flow generation to support higher dividend payouts.
Opportunities Threats
Asian gaming industry is expanding along with strong economic growth in the region. Keener competition as more governments around the Increasing visitor numbers to Cambodia. The government region legalize casino gambling to expand revenue source is improving infrastructure and promoting the tourism industry. and attract tourists. Accessing the Chinese VIP market by working with Macau Cambodia is regarded as an emerging economy and junket operators. business operations may be subject to higher political risk. Russian expansion. Entering this new gaming jurisdiction can help diversify theO business. T
Source: CER
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Management Profiles
Tan Sri Dr Chen Lip Keong, Founder, Controlling Shareholder and Chief Executive Officer. Dr Chen has many years of entrepreneurial, business and managerial experience. In Malaysia he is also the controlling shareholder of Karambunai Corp Bhd (KCB), FACB Industries Incorporated Berhad (FACBI) and Petaling Tin Berhad, which are all listed on the Bursa Malaysia Securities Berhad.
Timothy Patrick McNally, Chairman. Mr McNally joined in February 2005 as chairman of the board. From April 1999 to October 2005 he was Executive Director of Security and Corporate Legal Services for the Hong Kong Jockey Club and was also a member of the Executive Board of Management responsible for corporate governance issues. Prior to this, he was a Special Agent of the Federal Bureau of Investigation (FBI) for almost 25 years. His career focused on the investigation and prosecution of serious crimes including organized crime, drug trafficking, public corruption and fraud matters.
Philip Lee Wai Tuck, Executive Director. Mr Lee has previously worked in or held directorships in various companies listed on the Bursa Malaysia. He has also held senior management positions in financial and management functions with wide-ranging experience in accounting, finance, treasury and corporate finance. He oversees the financial, treasury and business operations of the group.
Chen Yepern, Executive Director. Mr Chen was appointed as an executive director in February 2011, and also a member of the Remuneration Committee, Nomination Committee and AML Oversight Committee of the company. He graduated with a Bachelor of Science degree in Finance from The California State University Northridge in 2009 and subsequently worked at Caesars Palace in 2010, and is the son of Tan Sri Dr Chen Lip Keong.
Mark Anthony Brown, Chief Operating Officer of NagaWorld. Mr Brown supports the Chief Executive Officer in managing the operations, marketing and business development of NagaWorld and, together with other consultants, driving the initial stages of the development of the casino project in Vladivostok, the Primorsky Region, Russia. Prior to joining the group, he served as Senior Vice President of Strategic Development, Wynn.
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Company Description NagaCorp operates NagaWorld, the only integrated casino-hotel in Cambodia’s capital city of Phnom Penh. The company holds a 70-year casino licence until 2065 and a 40-year casino monopoly within a 200-km radius of Phnom Penh until 2035. In 2013, mass market, VIP market and non-gaming contributed about 55%, 39% and 6% of total revenue respectively.
Income Statement (Consolidated) Balance Sheet (Consolidated) FY-end 31 Dec (US$ m) 2012 2013 2014E 2015E 2016E FY-end 31 Dec (US$ m) 2012 2013 2014E 2015E 2016E Sales 278.8 344.9 410.3 503.3 596.7 Total assets 428.3 640.1 786.0 855.7 1,205.0 Cost of sales (75.6) (96.4) (120.8) (149.9) (185.3) Current assets 95.3 270.9 330.5 414.2 525.9 Gross profit 203.2 248.6 289.5 353.4 411.4 Cash & ST investments 73.2 252.1 309.0 390.6 501.1 Other income 1.4 1.8 2.5 2.7 3.3 Marketable securities - - - - - Operating expenses (87.0) (104.9) (133.4) (163.6) (188.0) Account & notes receivable 20.9 17.8 20.5 22.6 23.9 Operating profit 117.6 145.4 158.7 192.6 226.8 Inventories 1.1 1.0 1.0 1.0 1.0 Finance cost, net - - - - - Others 0.0 0.0 0.0 0.0 0.0 Pre-tax profit 117.6 145.4 158.7 192.6 226.8 Non-current assets 333.0 369.2 455.5 441.5 679.0 Tax (4.5) (5.1) (5.7) (6.6) (7.5) Net fixed assets 318.6 347.6 433.8 438.0 675.5 Minorities - - - - - Others 14.4 21.6 21.6 3.5 3.5 Net profit 113.1 140.3 153.0 186.0 219.2 Total liabilities 26.4 40.1 48.8 60.4 74.6 EBITDA 137.8 171.8 196.4 236.6 294.2 Current liabilities 26.4 40.1 48.8 60.4 74.6 EBIT 117.6 145.4 158.7 192.6 226.8 Account payable 26.0 39.7 48.3 60.0 74.1 EPS (US cents) 5.43 6.28 6.70 6.94 8.18 ST borrowings - - - - - DPS (US cents) 3.84 4.31 4.69 4.86 5.72 Others 0.4 0.4 0.4 0.4 0.4 Sources: Company, CER estimates Non-current liabilities 0.0 0.0 0.0 0.0 0.0 Long-term debts - - - - - Others - - - - - Cash Flow (Consolidated) Total equity 401.9 600.0 737.2 795.3 1,130.4 FY-end 31 Dec (US$ m) 2012 2013 2014E 2015E 2016E Shareholders' equity 401.9 600.0 737.2 795.3 1,130.4 Operating cash flow 143.9 179.9 196.6 239.5 299.7 Minority shareholders - - - - - Net profit 113.1 140.3 153.0 186.0 219.2 Total liabilities + total equities 428.3 640.1 786.0 855.7 1,205.0 Depreciation & amortization 20.2 26.4 37.7 44.0 67.5 Net cash / (debt) 73.2 252.1 309.0 390.6 501.1 Change in working capital 9.8 12.4 5.9 9.5 13.0 Working capital 68.9 230.8 281.8 353.8 451.4 Others 0.8 0.8 0.0 -0.0 Total capital employed 401.9 600.0 737.2 795.3 1,130.4 Investment cash flow (71.7) (58.8) (30.0) (30.0) (30.0) Shareholders' equity + Minorities 401.9 600.0 737.2 795.3 1,130.4 Net capex (72.2) (59.4) (30.0) (30.0) (30.0) Net gearing (%) NC NC NC NC NC Disposals - - - - - Sources: Company, CER estimates Change in LT assets - - - - - Free cash flow 71.7 120.5 166.6 209.5 269.7 Financing cash flow (63.7) 57.8 (109.7) (128.0) (159.2) Financial Summary Change in share capital - 156.1 - - - FY-end 31 Dec 2012 2013 2014E 2015E 2016E Net change in debt - - - - - Growth (%) Dividend paid (63.7) (97.2) (109.7) (128.0) (159.2) Revenue 24.6 23.7 18.9 22.7 18.6 Net cash flow 8.5 178.9 56.9 81.5 110.5 EBITDA 23.3 24.7 14.3 20.4 24.4 Sources: Company, CER estimates EBIT 22.5 23.6 9.121.4 17.7 Net profit 22.9 24.0 9.1 21.6 17.9 EPS 22.9 15.7 6.8 3.5 17.9 Margins (%) Key Assumptions Gross 72.9 72.1 70.6 70.2 68.9 EBITDA 49.4 49.8 47.9 47.0 49.3 FY-end 31 Dec 2012 2013 2014E 2015E 2016E EBIT 42.2 42.2 38.7 38.3 38.0 VIP rollings YoY % 17 21 18 25 25 Net 40.6 40.7 37.3 37.0 36.7 Public floor Buy-ins YoY % 34 15 20 20 15 Others (%) Sources: Company, CER estimates Effective tax rate 3.8 3.5 3.6 3.4 3.3 Payout ratio 70.7 68.6 70.0 70.0 70.0 RoCE 31.2 29.0 23.7 25.1 23.5 Average RoE 30.0 28.0 22.9 24.3 22.8 Average RoA 28.3 26.3 21.5 22.7 21.3 Interest cover (x) N/A N/A N/A N/A N/A Sources: Company, CER estimates
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Everbright Research Limited Rating System
Buy Expected to outperform the benchmark index by >15% over the next six months Accumulate Expected to outperform the benchmark index by 5 - 15% over the next six months Hold Expected to outperform or underperform the benchmark index by <5% over the next six months Reduce Expected to underperform the benchmark index by 5 - 15% over the next six months Sell Expected to underperform the benchmark index by >15% over the next six months
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