Gaming HONG KONG March 21, 2013
NagaCorp Ltd COMPANY NOTE 3918 HK / 3918.HK Current HK$6.13 SHORT TERM (3 MTH) LONG TERM Market Cap Avg Daily Turnover Free Float Target HK$7.81 US$1,802m US$8.42m 58.0% Previous Target N/A HK$13,989m HK$65.30m 2,282 m shares Up/downside 27.4%
Conviction| |
Notes from the Field Khmer Gaming King NagaCorp operates the leading casino in Cambodia and has multi-year rerating potential from its monopoly in Phnom Penh supported by strong economic growth in Indochina and new capacity from 2016 to boost its gaming and non-gaming businesses.
We initiate coverage with an believe that continued tourism
Outperform rating and a target price growth to Cambodia (+24% in 2012) Michael Ting based on 14x CY14 EV/EBITDA, on along with strong economic growth in T (852) 25321121 E [email protected] par with our target for Sands China. Indochina (7.1% average growth from Including a dividend yield of 7%, 2013 to 2015) bodes well for gaming returns could total 34%. Stronger- operations in the region. Travel
Company Visit Expert Opinion than-expected gaming revenue and convenience and infrastructure EBITDA growth are catalysts. improvements in Phnom Penh, along Channel Check Customer Views with an established gaming and Casino monopoly non-gaming track record should
“The company’s corporate NagaCorp operates NagaWorld, an continue to shape NagaWorld into a vision is to become the integrated gaming resort in central preferred gaming destination in the undisputed entertainment Phnom Penh. It has a 70-year casino region. licence until 2065 and a 40-year destination in Indochina.” casino monopoly within a 200 km Naga2 to fuel growth radius of Phnom Penh until 2035. NagaCorp is expected to open its – Timothy McNally, Chairman NagaWorld offers diversified gaming second property, Naga2, in 2016. with 60% of its gaming revenue Naga2 is being built next to the coming from mass+slots, 34% from current NagaWorld complex and will VIP and the remainder from F&B, result in a 200% increase in gaming hotel, retail and entertainment tables, 145% increase in hotel rooms, facilities. NagaCorp is continuously 50x increase in retail space, and 6x extending its junket outreach in order increase in MICE facilities. Naga2’s to attract VIP players from outside US$369m capex will be privately Indochina. funded by NagaCorp’s founder and CEO, Dr. Chen Lip Keong, sparing the Favourable Indochina listed company from capex costs and macros keeping it debt-free. Naga2 forms Some 35-40% of NagaWorld’s mass- roughly 26% of our equity value for gaming visitors are from Vietnam. We the company, at HK$2.05/share.
Price Close Relative to HSI (RHS) Financial Summary 7.2 193 181 Dec-11A Dec-12A Dec-13F Dec-14F Dec-15F 6.2 169 157 Revenue (US$m) 223.8 278.8 333.2 404.5 491.9 5.2 145 133 Operating EBITDA (US$m) 110.3 138.6 165.3 200.0 242.1 4.2 121 109 Net Profit (US$m) 92.0 113.1 138.5 171.2 211.2 3.2 97 Core EPS (US$) 0.044 0.054 0.063 0.075 0.093 85 4002.2 73 Core EPS Growth 109% 23% 17% 18% 23% 300
200 FD Core P/E (x) 17.87 20.00 21.37 17.75 14.39 Vol m Vol 100 DPS (US$) 0.031 0.038 0.043 0.053 0.065 Mar-12 Jun-12 Sep-12 Dec-12 Dividend Yield 3.91% 4.86% 5.43% 6.71% 8.28% Source: Bloomberg EV/EBITDA (x) 14.32 11.34 8.87 7.46 5.88
52-week share price range P/FCFE (x) 30.08 24.41 22.83 18.62 14.89 6.13 Net Gearing (18.4%) (18.2%) (43.7%) (47.8%) (52.2%) 2.68 6.85 P/BV (x) 4.66 4.09 3.07 2.77 2.48 Recurring ROE 27.8% 30.0% 28.0% 27.7% 30.7% 7.81 Current Target % Change In Core EPS Estimates
CIMB/consensus EPS (x) 0.93
SOURCE: CIMB, COMPANY REPORTS IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. Sources: CIMB. COMPANY REPORTS Designed by Eight, Powered by EFA
NagaCorp Ltd March 21, 2013
PEER COMPARISON
Research Coverage Bloomberg Code Market Recommendation Mkt Cap US$m Price Target Price Upside Wynn Macau 1128 HK HK NEUTRAL 13,699 20.50 22.42 9.4% SJM Holdings 880 HK HK OUTPERFORM 13,665 19.12 23.62 23.5% Sands China 1928 HK HK OUTPERFORM 39,693 38.25 41.95 9.7% NagaCorp Ltd 3918 HK HK OUTPERFORM 1,802 6.13 7.81 27.4% MGM China Holdings 2282 HK HK OUTPERFORM 8,194 16.74 19.81 18.4%
Galaxy Entertainment 27 HK HK OUTPERFORM 17,854 32.95 36.81 11.7%
Rolling P/BV (x) Rolling FD P/E (x) 40 50 35 45 40 30 35 25 30 20 25 15 20 15 10 10 5 5 0 0 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
Wynn Macau SJM Holdings Sands China Wynn Macau SJM Holdings Sands China NagaCorp Ltd MGM China Holdings NagaCorp Ltd MGM China Holdings
Peer Aggregate: P/BV vs Recurring ROE Peer Aggregate: FD P/E vs FD EPS Growth 9 45% 200 1,500% 8 40% 180 1,050% 7 35% 160 600% 140 150% 6 30% 120 -300% 5 25% 100 -750% 4 20% 80 -1,200% 3 15% 60 -1,650% 2 10% 40 -2,100% 1 5% 20 -2,550% 0 0% 0 -3,000% Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14
Rolling P/BV (x) (lhs) Recurring ROE (rhs) Rolling FD P/E (x) (lhs) Fully Diluted EPS Growth (rhs)
Valuation P/E (FD) (x) P/BV (x) EV/EBITDA (x) Dec-12 Dec-13 Dec-14 Dec-12 Dec-13 Dec-14 Dec-12 Dec-13 Dec-14 Wynn Macau 15.94 14.33 13.85 14.44 9.60 7.13 12.92 11.67 11.14 SJM Holdings 15.83 13.51 12.17 5.31 4.63 4.12 11.75 9.74 8.66 Sands China 32.22 21.74 16.22 7.13 6.68 5.81 22.28 17.05 13.19 NagaCorp Ltd 20.00 21.37 17.75 4.09 3.07 2.77 11.34 8.87 7.46 MGM China Holdings 14.04 12.45 11.11 10.76 7.38 5.39 11.52 9.37 8.02 Galaxy Entertainment 19.51 16.32 14.31 6.22 4.48 3.40 14.16 11.56 9.26
Growth and Returns Fully Diluted EPS Growth Recurring ROE Dividend Yield Dec-12 Dec-13 Dec-14 Dec-12 Dec-13 Dec-14 Dec-12 Dec-13 Dec-14 Wynn Macau 12.7% 11.2% 3.4% 117.1% 80.5% 59.1% 3.14% 3.49% 3.61% SJM Holdings 29.7% 17.2% 11.0% 36.3% 36.9% 36.1% 4.71% 5.67% 6.29% Sands China 8.6% 48.2% 34.0% 22.2% 31.7% 38.3% 3.66% 3.91% 4.01% NagaCorp Ltd -10.7% -6.4% 20.4% 30.0% 28.0% 27.7% 4.86% 5.43% 6.71% MGM China Holdings 38.2% 12.7% 12.1% 87.8% 70.3% 56.1% 6.09% 4.01% 4.50% Galaxy Entertainment 136.6% 19.6% 14.0% 40.6% 33.3% 28.1% 0.00% 0.00% 0.00%
SOURCE: CIMB, COMPANY REPORTS
Calculations are performed using EFA™ Monthly Interpolated Annualisation and Aggregation algorithms to December year ends
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NagaCorp Ltd March 21, 2013
BY THE NUMBERS
Share price info P/BV vs Recurring ROE FD Core P/E vs FD Core EPS Growth Share px perf. (%) 1M 3M 12M 4.5 30.5% 25 120% Relative 9.2 32.3 60.4 4.0 30.0% 3.5 29.5% 20 92% Absolute 6.2 31 67 3.0 29.0% 15 64% Major shareholders % held 2.5 28.5% 2.0 28.0% Dr. Chen Lip Keong 41.7 10 36% 1.5 27.5% OSK Investment Bank 7.0 1.0 27.0% 5 8% 0.5 26.5% Ameriprise Financial 4.6 0.0 26.0% 0 -20% Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14
Rolling P/BV (x) (lhs) Recurring ROE (rhs) Rolling FD Core P/E (x) (lhs) FD Core EPS Growth (rhs)
Profit & Loss
(US$m) Dec-11A Dec-12A Dec-13F Dec-14F Dec-15F Total Net Revenues 223.8 278.8 333.2 404.5 491.9 Gross Profit 163.8 203.2 244.2 298.5 365.0 Revenue growth fuelled by Operating EBITDA 110.3 138.6 165.3 200.0 242.1 stronger visitor arrivals in Depreciation And Amortisation (15.8) (20.2) (20.8) (21.8) (22.6) Operating EBIT 94.5 118.4 144.5 178.3 219.5 Cambodia, capacity Total Financial Income/(Expense) 1.7 0.5 0.6 0.7 0.8 expansion, and higher Total Pretax Income/(Loss) from Assoc. 0.0 0.0 0.0 0.0 0.0 per-table buy-ins. Total Non-Operating Income/(Expense) (0.2) (1.2) (1.2) (1.2) (1.2) Profit Before Tax (pre-EI) 96.0 117.6 143.9 177.7 219.1 Exceptional Items Pre-tax Profit 96.0 117.6 143.9 177.7 219.1 Taxation (4.0) (4.5) (5.3) (6.5) (7.9) Exceptional Income - post-tax Profit After Tax 92.0 113.1 138.5 171.2 211.2 Minority Interests Preferred Dividends FX Gain/(Loss) - post tax Other Adjustments - post-tax Net Profit 92.0 113.1 138.5 171.2 211.2 Recurring Net Profit 92.0 113.1 138.5 171.2 211.2 Fully Diluted Recurring Net Profit 92.0 113.1 138.5 171.2 211.2
Cash Flow
(US$m) Dec-11A Dec-12A Dec-13F Dec-14F Dec-15F EBITDA 110.3 138.6 165.3 200.0 242.1 Cash Flow from Invt. & Assoc. Change In Working Capital 5.9 16.0 0.3 0.3 0.3 (Incr)/Decr in Total Provisions No significant capex as Other Non-Cash (Income)/Expense 0.5 (0.2) 0.0 0.0 0.0 Other Operating Cashflow (0.2) 2.3 (1.2) (1.2) (1.2) Naga2 will be privately Net Interest (Paid)/Received 0.0 0.0 0.0 0.0 0.0 financed by founder Dr. Tax Paid (3.6) (4.5) (5.3) (6.5) (7.9) Chen. Cashflow From Operations 112.8 152.2 159.1 192.6 233.3 Capex (45.5) (60.0) (30.0) (30.0) (30.0) Disposals Of FAs/subsidiaries Acq. Of Subsidiaries/investments Other Investing Cashflow (12.7) 0.5 0.6 0.7 0.8 Cash Flow From Investing (58.2) (59.5) (29.4) (29.3) (29.2) Debt Raised/(repaid) Proceeds From Issue Of Shares 156.0 0.0 0.0 Shares Repurchased Dividends Paid (48.2) (63.7) (102.1) (109.4) (135.1) Preferred Dividends Other Financing Cashflow (0.0) 0.0 0.0 0.0 0.0 Cash Flow From Financing (48.2) (63.7) 53.9 (109.4) (135.1)
SOURCE: CIMB, COMPANY REPORTS
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NagaCorp Ltd March 21, 2013
BY THE NUMBERS
Balance Sheet
(US$m) Dec-11A Dec-12A Dec-13F Dec-14F Dec-15F Total Cash And Equivalents 64.8 73.2 256.8 310.6 379.6 Total Debtors 24.4 20.9 25.0 30.3 36.9 NagaCorp carries no debt as Inventories 1.2 1.1 1.3 1.6 1.9 internal cash flows are Total Other Current Assets 5.2 0.0 0.0 0.0 0.0 sufficient for funding working Total Current Assets 95.5 95.3 283.1 342.5 418.4 Fixed Assets 187.7 238.2 243.5 255.1 265.9 capital needs. Total Investments 0.0 0.0 0.0 0.0 0.0 Intangible Assets 83.9 80.4 77.9 74.9 71.9 Total Other Non-Current Assets 4.4 14.4 14.4 14.4 14.4 Total Non-current Assets 276.1 333.0 335.9 344.5 352.2 Short-term Debt Current Portion of Long-Term Debt Total Creditors 18.8 26.0 30.6 36.5 43.7 Other Current Liabilities 0.3 0.4 0.4 0.4 0.4 Total Current Liabilities 19.1 26.4 31.0 36.9 44.1 Total Long-term Debt Hybrid Debt - Debt Component Total Other Non-Current Liabilities 0.0 0.0 0.0 0.0 0.0 Total Non-current Liabilities 0.0 0.0 0.0 0.0 0.0 Total Provisions 0.0 0.0 0.0 0.0 0.0 Total Liabilities 19.1 26.4 31.0 36.9 44.1 Shareholders' Equity 352.5 401.9 587.9 650.1 726.6 Minority Interests Total Equity 352.5 401.9 587.9 650.1 726.6
Key Ratios
Dec-11A Dec-12A Dec-13F Dec-14F Dec-15F Revenue Growth 48.7% 24.6% 19.5% 21.4% 21.6% Operating EBITDA Growth 60.2% 25.6% 19.3% 21.0% 21.0% Operating EBITDA Margin 49.3% 49.7% 49.6% 49.4% 49.2% Net Cash Per Share (US$) 0.03 0.04 0.11 0.14 0.17 BVPS (US$) 0.17 0.19 0.26 0.28 0.32 Gross Interest Cover N/A N/A N/A N/A N/A Effective Tax Rate 4.14% 3.81% 3.72% 3.66% 3.61% Net Dividend Payout Ratio 69.9% 70.7% 70.7% 70.7% 70.7% Accounts Receivables Days 40.23 29.73 25.12 24.94 24.92 Inventory Days 5.51 5.77 5.10 5.07 5.06 Accounts Payables Days 99.2 108.5 116.2 115.5 115.3 ROIC (%) 35.7% 41.1% 44.0% 53.8% 64.6% ROCE (%) 29.1% 31.5% 29.3% 28.9% 32.0%
Key Drivers
Dec-11A Dec-12A Dec-13F Dec-14F Dec-15F VIP Chip Volume (% Change) 36.2% 16.9% 14.0% 13.0% 16.0% VIP Chip Win Percentage (%) 2.5% 2.5% 2.5% 2.5% 2.5% Mass mkt chip drop (% chg.) 27.4% 34.4% 35.0% 32.0% 30.0% Mass mkt chip win (%-tage) 24.1% 22.4% 22.0% 22.0% 22.0% Slot Handle (% Change) 44.4% 28.1% 25.0% 22.0% 20.0% Slot Hold Percentage (%) 12.0% 11.5% 11.5% 11.5% 11.5% Net Win Per Slot (% Change) 79.9% -1.6% 11.6% 22.0% 20.0% Net Win Per Table (% Change) 49.3% 1.8% -0.7% 22.3% 23.4% No. Of Slots 1,130 1,470 1,500 1,500 1,500 No. Of Tables 116 138 170 170 170
SOURCE: CIMB, COMPANY REPORTS
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NagaCorp Ltd March 21, 2013
Khmer Gaming King
Table of Contents 1. BACKGROUND 1. BACKGROUND p.5 2. OUTLOOK p.12 1.1 Leading casino operator in Cambodia 3. RISKS p.22 NagaCorp is the leading gaming operator in Cambodia and operates 4. FINANCIALS p.25 NagaWorld, the only integrated casino-hotel in Cambodia’s capital city of 5. VALUATION AND RECOMMENDATION p.33 Phnom Penh. NagaWorld is centrally located next to the Ministry of Foreign Affairs near the Bassac River, and is close to the streets and the riverside in the popular Sisowath Quay area. The property is 1km away from the Royal Palace, 4km from the city centre, and 12km from the airport.
Figure 1: NagaWorld’s location in Phnom Penh Figure 2: Close-up aerial view of NagaWorld
SOURCES: Google Map SOURCES: Google Map
The property sits on 14.2k sq m of land with 660 hotel rooms, 15 food and beverage outlets, one spa, one night club, one karaoke lounge, meeting facilities, and club lounges featuring live music. Its MICE facilities include 25k sq m of meeting and ballroom space along with a 60-seat auditorium. At end-2012, NagaWorld operated 1,470 electronic-gaming machines and 138 gaming tables, targeted at the mass, premium-mass and VIP markets. NagaCorp does not have limits on the amount of its gaming space, tables or types of games.
Figure 3: NagaWorld’s exterior view Figure 4: Hotel lobby view
SOURCES: vn.nagaworld.com SOURCES: tnktravelvietnam.com
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NagaCorp Ltd March 21, 2013
NagaWorld has a public gaming hall to serve the mass crowd. The minimum bet size for its mass-gaming tables is US$30. The hall, measuring roughly 7,000 sq m, features 946 slot machines (minimum bet of 10 UScts to US$1) along with 59 tables for six types of card games including baccarat, blackjack and poker. NagaWorld also offers two exclusive areas with gaming machines called Rapid1 (open since Sep 11) and Rapid2 (open since Jun 12). Rapid 1 has 99 machines and Rapid2 has 92. Their electronic games include multi-player terminals for roulette, baccarat and sicbo featuring a live operator. They are targeted at lower-end mass players with lower minimum bet sizes.
Figure 5: Public gaming floor Figure 6: Rapid2’s electronic gaming
SOURCES: COMPANY REPORTS SOURCES: COMPANY REPORTS
In the more premium-mass market, NagaWorld offers two areas. NagaRock was opened in Feb 12 for higher-end integrated gaming and entertainment. It offers live music, gaming facilities and food & beverages. NagaRock has 13 tables and 213 machines. The minimum bet size in NagaRock is US$200. In Dec 12, NagaCorp opened Saigon Palace, which has a layout designed with the Vietnamese customer in mind. The minimum bet size at Saigon Place is US$100. Saigon Palace has nine tables and 120 machines. It offers Vietnamese-speaking dealers and Vietnamese music and food. To further target the premium-mass market, the company will be opening an Aristocrat Private Club on its public-gaming floor in 1H13. This is a membership-based club for players seeking greater privacy away from the mass-gaming crowd. There will be higher table limits, with five incremental tables.
Figure 7: NagaRock Figure 8: Saigon Palace
SOURCES: COMPANY REPORTS SOURCES: COMPANY REPORTS
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NagaCorp Ltd March 21, 2013
To serve higher-end VIPs, NagaWorld has junket VIP floors where the average buy-in is US$150k with a maximum bet size of US$24k per hand. The company also recently completed five VIP private suites with six gaming tables. The suites are designed for high rollers and will have a higher check-in amount as compared to the normal VIP check-in requirement. The customer is expected to roll a few times per stay with a higher table limit. These suites are available for sale and we expect NagaCorp to also operate the suites under the junkets profit-sharing scheme. The company also aims to create a new VIP-gaming area on the rooftop where its existing swimming pool is located. This new area could include up to 19 or 20 tables with a targeted opening by 2H13.
Figure 9: VIP suite Figure 10: VIP junket floor
SOURCES: COMPANY REPORTS SOURCES: COMPANY REPORTS
Figure 11: NagaWorld gaming areas
# tables # machines table min bet (US$) target market Opening date
Public gaming area 59 946 30 mass market 2003
VIP area 57 0 300 VIP 2003
Rapid 1 0 99 10 mass market Sept 2011
Rapid 2 0 92 5 mass market June 2012
Nagarock 13 213 200 Premium mass Feb 2012
Premium mass - Vietnamese Saigon Palace 9 120 100 customers Dec 2012
Ultra high end VIP through VIP suites 6 0 not yet determined junkets 1Q13
Aristocrat Private Club 5 13 not yet determined Premium mass 2013 SOURCES: CIMB, COMPANY REPORTS
The total number of gaming tables listed in figure 11 is just an approximate as the company can move tables around on a daily basis depending on demand. NagaWorld offers 660 hotel rooms, including a recently-built 200-room wing catering to Vietnamese customers (completed in 2012). This wing is targeted at budget customers with an average cost per room of US$70.
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NagaCorp Ltd March 21, 2013
Figure 12: A typical hotel room Figure 13: Hotel restaurant
SOURCES: CIMB, COMPANY website SOURCES: COMPANY REPORTS
1.2 Corporate structure
Figure 14: NagaCorp’s corporate structure
SOURCES: COMPANY REPORTS
1.3 Senior Management Tim McNally - Chairman and Non-Executive Director. Mr. McNally has been the Chairman of the Board since 2005. Prior to NagaCorp, Mr. McNally was an Executive Director of Security and Corporate Legal Services for the Hong Kong Jockey Club and was responsible for corporate governance-related issues for the Club. Prior to Mr. McNally’s role at the Hong Kong Jockey Club, he was a Special Agent for the Federal Bureau of Investigation (FBI) where he investigated and prosecuted crimes such as drug trafficking, corruption, fraud and organised crimes. Mr. McNally concluded his career at the FBI as head of the Los Angeles field division.
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NagaCorp Ltd March 21, 2013
Tan Sri Dr. Chen Lip Keong – Chief Executive Officer and Executive Director. Dr. Chen is the founder of NagaCorp and is the controlling shareholder of the company. Dr. Chen has a Bachelor of Medicine and Surgery and has had over 30 years of entrepreneurial and business experience. He founded NagaCorp in 1995. He is also the controlling shareholder and president of Karambunai Corp Bhd. which is involved in tourism in Sabah, East Malaysia, FACB Industries Incorporated Bhd. which manufactures and fits stainless steel pipes, and Petaling Tin Bhd. which is involved in property development. Philip Lee Wai Tuck- Chief Financial Officer and Executive Director. Mr. Lee is the Chief Financial Officer of NagaWorld Limited which is an indirect wholly-owned subsidiary of the company. Mr. Lee, who is a CPA, is responsible for the financial, overseas and business operations of the company. He has over 17 years of experience in various industries. Chen Yepern – Executive Director. Mr. Chen is currently a director of NagaCorp (HK) Limited, a wholly-owned subsidiary of NagaCorp Limited. Mr. Chen graduated with a Bachelor of Science degree in Finance from the California State University Northridge, and has previous working experience at Caesar’s Palace. Mr. Chen is the son of Tan Sri Dr. Chen Lip Keong, the CEO and founder of NagaCorp.
1.4 NagaCorp history NagaCorp was created as a result of a tender issued by the Royal Government of Cambodia in 1994. The tender was for the construction of a casino on Naga Island in southern Cambodia. Dr. Chen’s company Ariston Sdn Bhd., which is a Malaysian developer/construction firm and a member of the conglomerate Lipkland Group, outbid rivals such as Landmarks Bhd, Unicentral Corporation (Singapore) and Hyatt International Group. In addition to the casino development, Ariston also included infrastructure investments into Cambodia to make the country a more desirable place for future foreign investment. The total value of the Cambodian projects that Ariston agreed to participate in was around US$1bn. Ariston also received support of the Malaysian government for its proposed Cambodia investments as this would make the entire ASEAN region more stable for future business investments. In 1995, the Cambodian government granted Ariston a 20-year exclusive licence to operate a casino in Cambodia. Upon receiving the licence, Ariston opened a gaming operation featuring a gambling cruise liner which went into operation in 1995. However, between 1995 and 1999, many unlicensed casinos opened up in Phnom Penh which adversely affected the gaming business on Ariston’s barge. After a series of legal suits, the gaming licence for Ariston was extended from 20 years to 70 years starting from 2 Jan 1995, thus allowing the company to run a casino in Cambodia until 2065. In 2000, the company formalised a 70-year lease for the current land operations of NagaWorld. Construction commenced in December 2000 and the property opened in 2003 as the gaming operations were moved from the barge onto the current land-based site where the NagaWorld complex currently sits. NagaCorp applied for a listing on the Singapore Stock Exchange in 2003 but was rejected as the company did not have an established track record for internal anti-money laundering controls. The company did not appeal the Singapore Stock Exchange’s ruling, and subsequently decided to list on the Hong Kong Stock Exchange, which it did in 4Q06. In 2005, Ariston was granted an exclusive licence as the only casino to be operated within a 200km radius of Phnom Penh until 2035. In return, the development rights of certain projects such as the Naga Island Resort and Sinhanoukville Airport were given back to the government. These projects had a total value of US$155m.
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NagaCorp Ltd March 21, 2013
In November 2012, NagaCorp conducted ground-breaking ceremonies for its second gaming complex, Naga2, located adjacent to the current NagaWorld Complex. Naga2 is targeted to open in late-2015 or early-2016.
Figure 15: NagaCorp development history
Royal Government of Cambodia tenders the right to develop a casino on Naga Island which is 800 meters off the coast of Sihanoukville in Southern 1994 Cambodia
Ariston Sdn Bhd, won the tender to build a US$1 billion infrastructure and tourism project. Ariston is a subsidiary of Lipkland Group whose CEO is Datuk 1995 Dr. Chen Lip Keong
1995 Naga Resorts which is a gaming barge started gaming operations
1999 Ariston sues the Cambodian government for breaching the contract of gaming exclusivity in Cambodia as unauthorized casinos opened in Phnom Penh
2000 As part of the settlement, the government extends Ariston's gaming license until 2065
2000 Formalized a 70 year lease for the current 14.2k sqm site of NagaWorld
2000 NagaWorld construction commences
2003 Casino operations were moved from the barge to a new on-land hotel and entertainment complex, NagaWorld
2003 Singapore Stock Exchange refused the public listing for the Company
Government grants Ariston a gaming exclusivity around a 200km radius of Phnom Penh until 2035 in return for the development rights of certain 2005 infrastructure projects valued at $155m
2006 NagaCorp listed on HK stock exchange
2012 Ground breaking for new property Naga2 to be opened in late 2015 / early 2016 SOURCES: CIMB, COMPANY REPORTS
1.5 Recent timeline of Cambodia
Figure 16: Cambodia map
SOURCES: ENCYCLOPEDIA BRITANNICA
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NagaCorp Ltd March 21, 2013
Cambodia’s recent history has been plagued by war, starting with the Vietnam War in the 1960s, followed by a civil war and military conflicts with Vietnam when the country was under the oppressive rule of the Khmer Rouge. It was not until 1991 that Cambodia saw relative peace. Cambodia today is a young nation, with a median age of 23 years and an economy that is fuelled by foreign direct investment. The country, along with the Indochina region, is forecast to experience strong economic growth over the coming years.
Figure 17: Cambodian history
1863 The beginnings of French colonial rule in Cambodia
1953 King Sihanouk declared independence from the French
Eastern provinces of Cambodia are bombed by the United States on suspicions that the North Vietnamese had established bases there. King Sihanouk did not support the US in the Vietnam mid 1960's War
King Sinanouk was overthrown by a military coup led by General Lon Nol. Lon Nol assumed 1970 power and sided with the United States in the Vietnam conflict
Lon Nol's government faced conflict from the North Vietnamese in addition to insurgency from 1970 the CPK (Communist Party of Kampuchea)
North Vietnamese army infiltrated deeper into Cambodia and over-ran Lon Nol's forces. US 1970 military had difficulty in countering North Vietnamese forces located inside Cambodia
CPK military is growing stronger and controlled 60% of the land mass in Cambodia during its 1973 insurgency against Lon Nol
1975 Lon Nol's government falls to the CPK
Democratic Kampuchea (Khemer Rouge) - restructuring of Cambodian society by means such as but not limited to outlawing religion, collectivizing architecture and abolishing the banking system. 2 million people estimated to have died during the period of starvation, disease and 1975-1979 executions under Pol Pot
1978 Increased conflicts with Vietnam led to a Cambodian invasion by Vietnamese military
People's Republic of Kampuchea (PRK) was established after the Vietnamese invasion. Heng Samrin was the chairman of the pro-Vietnamese Communist government. Khemer Rouge was forced to the Thailand border and still lead insurgency attacks against the new government. 600k displaced; 100k Cambodians killed by the Vietnamese; Cambodians were forced to the 1979 Thai border due to the 12 year civil war
UN reached a settlement to disarm factional armies, repatriate displaced citizens and help with 1991 free elections in Cambodia
1993 Free elections held in Cambodia
New constitution was formed with a multiparty liberal democracy. Prince Sihanouk was named 1993 the King and Prince Ranariddh and Hun Sen became the first and second Prime Ministers
Fighting broke out between the parties of Prince Ranariddh and Hun Sen. Prince Ranariddh was 1997 exiled
National assembly elections held where Hun Sen's Cambodian People's Party won the majority. 1998 Hun Sen became the first Prime Minister
2003 Prime Minister voting - Cambodian People's Party of Hun Sen won a majority of the votes SOURCES: CIMB
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NagaCorp Ltd March 21, 2013
2. OUTLOOK 2.1 Indochina economic outlook Indochina historically comprises the former French colonies of Cambodia, Laos and Vietnam with a combined population of roughly 110 million. We note that the broader geographical definition of Indochina today also includes Burma and Thailand but for this report, we use the historical definition of Indochina for our analysis. According to the International Monetary Fund (IMF), the economies of Cambodia, Lao and Vietnam are expected to see an average of 7%+ GDP growth until 2017, making Indochina one of the fastest growing regions in East Asia.
Figure 18: GDP % change forecast
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Cambodia 6.7 0.1 6.1 7.1 6.5 6.7 7.2 7.4 7.6 7.7 Lao 7.8 7.5 8.1 8.0 8.3 8.1 7.7 7.8 7.9 7.8 Vietnam 6.3 5.3 6.8 5.9 5.1 5.9 6.4 6.8 7.2 7.5 Indochina average 6.9 4.3 7.0 7.0 6.6 6.9 7.1 7.3 7.6 7.7
Thailand 2.6 -2.3 7.8 0.1 5.6 6.0 4.5 4.6 4.8 5.0 China 9.6 9.2 10.4 9.2 7.8 8.2 8.5 8.5 8.5 8.5 Malaysia 4.8 -1.5 7.2 5.1 4.4 4.7 5.0 5.0 5.0 5.0 Singapore 1.7 -1.0 14.8 4.9 2.1 2.9 3.6 3.7 3.8 3.9 SOURCES: IMF, October 2012
Figure 19: GDP per capita US$
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Cambodia 711 703 753 853 934 1,018 1,111 1,215 1,331 1,459 Lao 879 916 1,105 1,320 1,454 1,588 1,709 1,852 2,007 2,175 Vietnam 1,048 1,068 1,174 1,374 1,523 1,660 1,783 1,913 2,044 2,180 Indochina average 879 896 1,011 1,183 1,304 1,422 1,534 1,660 1,794 1,938
Thailand 4,300 4,151 4,992 5,395 5,848 6,364 6,704 7,024 7,345 7,708 China 3,404 3,740 4,423 5,417 6,094 6,644 7,262 7,957 8,710 9,528 Malaysia 8,390 7,252 8,737 10,085 10,578 11,513 12,243 13,020 13,846 14,724 Singapore 38,087 36,567 43,865 49,271 49,936 50,899 52,050 53,348 54,717 56,198 SOURCES: IMF, October 2012
Figure 20: Export volume yoy% change
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Cambodia 2.1 2.6 23.6 14.8 23.0 11.1 10.8 13.4 12.6 12.7 Lao 15.4 7.0 17.5 1.0 12.9 8.0 5.4 5.3 13.4 3.3 Vietnam 3.7 3.7 4.7 3.6 20.2 13.2 12.7 13.8 11.3 5.8 Indochina average 7.1 4.4 15.3 6.5 18.7 10.8 9.6 10.8 12.4 7.2
Thailand 5.1 -14.4 17.9 10.2 6.8 8.4 8.2 6.7 6.5 6.2 China 8.2 -10.7 28.4 9.4 5.0 7.2 10.9 11.4 11.5 11.7 Malaysia -6.0 -13.0 10.1 4.9 1.2 8.2 8.9 8.6 8.6 8.0 Singapore 3.7 -10.1 19.9 3.0 2.9 3.8 4.1 4.3 4.3 4.3 SOURCES: IMF, October 2012
Indochina’s economic growth will, in part, be driven by relative political peace after decades of external and internal conflict. As these countries rebuild, foreign direct investment will continue to pour in, leading to improved infrastructure, industrial development and hence, stronger export volume. If we use Thailand, which is the closest country to the Indochina region, as a
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comparison, we see that Indochina’s GDP per capita is, on average, only 22% of the GDP per capita of Thailand during 2012, but this ratio is expected to improve to 25% by 2017. In addition, the average export volume percentage growth of Cambodia and Vietnam are expected to outgrow China’s in 2013-2016 according to the International Monetary Fund (IMF). The higher export volume of Indochina can help to sustain the growth of these economies and boost domestic consumption. According to the World Bank, Vietnam’s gross national income (GNI) per capita has increased from US$396 in year 2000 to US$719 in 2011. Similarly, Cambodia’s GNI per capita has increased from $284 in 2000 to US$555 in 2011.
Figure 21: Vietnam’s Gross National Income per capita (US$) Figure 22: Cambodia’s Gross National Income per capita (US$)
800 600 Title: Title: Source: Source: 700 500 Please fill in the values above to have them entered in your report Please fill in the values above to have them entered in your report 600
400 500
400 300
300 200
200
100 100
0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
SOURCES: WORLD BANK SOURCES: WORLD BANK
A big driver for Cambodia’s economy is foreign direct investment into the country. In 2012, Cambodia saw US$768m of foreign direct investment which was a 13% yoy increase compared to 2011. Foreign direct investment into Cambodia has increased from US$121m in 2004 to US$768m in 2012 which represents a CAGR of 26%. Industries that attract foreign direct investment dollars include garment, agriculture, tourism and construction. South Korea, China and Japan are the largest investors in Cambodia.
Figure 23: Foreign Direct Investment into Cambodia (US$m)
1000 Title: Source: 900
800 Please fill in the values above to have them entered in your report 700
600
500
400
300
200
100
0 2004 2005 2006 2007 2008 2009 2010 2011 2012
SOURCES: CAMBODIA BUSINESS REVIEW, JAN 2013
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2.2 Tourism to Cambodia Cambodia has experienced an increase in tourism from 286k in 1998 to 3.6 million in 2012 which represents a CAGR of 20%. For the full year 2012, Cambodia experienced a 24% increase in tourism to 3.6 million visitors. Visitors from Vietnam made up the largest percentage of tourists to Cambodia at 21% during 2012. South Korea and China comprised the next two largest groups at 12% and 9% respectively, followed by Laos and Thailand. The rise in tourism is supported by the country’s improving infrastructure and services such as airports enhancements, along with improved roads and hotels around popular destinations such as Angkor Wat and Phnom Penh. Another draw is cost: attractions and entertainment are generally cheaper in Cambodia than in surrounding countries.
Figure 24: Tourist arrivals in Cambodia Figure 25: Top visitors to Cambodia by origin 2012
4,000,000 60% Title: Title: Source: Source: 3,500,000 50% 21% 3,000,000 40% Please fill in the values above to have them entered in your report Please fill in the values above to have them entered in your report
2,500,000 30% 45% 2,000,000 20%
1,500,000 10% 12%
1,000,000 0%
500,000 -10% 9% 0 -20% 6% 7%
Number yoy % Vietnam Korea China Lao Thailand Others
SOURCES: CAMBODIA MINISTRY OF TOURISM SOURCES: CAMBODIA MINISTRY OF TOURISM
Overall tourism receipts in Cambodia increased to US$1.9 billion in 2011 from US$100 million in 1995, while average spending per visitor increased to US$663 in 2011 from US$455 in 1995. Since 1995, tourism spending per visitor has increased by an average of 2% per year. In addition, the average hotel occupancy rates have increased from 37% in 1997 to 66% in 2011.
Figure 26: Spending per visitor US$ Figure 27: Hotel occupancy rates
800 70% Title: Title: Source: Source: 700 60%
600 Please fill in the values above to have them entered in your report Please fill in the values above to have them entered in your report 50%
500 40% 400 30% 300
20% 200
100 10%
0 0%
1995 1996 1998 1999 2001 2002 2003 2005 2006 2008 2009 1995 1996 1998 2000 2001 2002 2003 2005 2007 2008 2010 1997 2000 2004 2007 2010 2011 1997 1999 2004 2006 2009 2011
SOURCES: CAMBODIA MINISTRY OF TOURISM SOURCES: CAMBODIA MINISTRY OF TOURISM
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2.3 Gaming in Cambodia NagaWorld is the only casino operator allowed within a 200km radius of Phnom Penh until 2035. Besides NagaWorld, around 30 smaller casinos exist in Cambodia near its border with Thailand, in towns such as Poipet. These casinos that feature common games such as blackjack, poker, roulette and slots cater mainly to the lower-end, day-tripper crowd who cross the border from Thailand, where gambling is illegal. No official statistics are available on the size of the Cambodian border casino market, but based on our channel checks, we estimate that the border casinos represent only about 20-30% of the overall revenue in the Cambodian casino market. Globally, the proliferation of gaming activities has often been historically correlated to gaming capacity and economic growth. Gaming can be considered a consumer discretionary activity which proliferates during times of economic boom. Taking both Las Vegas and Macau as examples, gaming revenue within these respective markets is highly correlated with key economic factors such as GDP growth in the United States and in China. As Indochina GDP growth is still forecasted to expand from 2013-2017 according to the IMF, gaming activities in Cambodia should also see a similar expansion.
Figure 28: Macau GGR and China GDP Figure 29: Las Vegas gaming revenue vs. US GDP
90% 16% 30% Title: 8.0% Title: 80% Source: Source: 14% 25% 70% 6.0% 20% 12% Please fill in the values above to have them entered in your report Please fill in the values above to have them entered in your report 60% 15% 4.0% 50% 10% 40% 10% 8% 2.0% 30% 5% 20% 6% 0% 0.0% 10% 4% -5% 0% -2.0% 2%
-10% -10%
3Q06 4Q06 1Q07 4Q07 1Q08 2Q08 1Q09 2Q09 3Q09 2Q10 3Q10 4Q10 3Q11 4Q11 1Q12 4Q12 1Q06 2Q06 2Q07 3Q07 3Q08 4Q08 4Q09 1Q10 1Q11 2Q11 2Q12 3Q12 -20% 0% -15% -4.0%
GGR (lhs) GDP (rhs) Gaming rev GDP yoy
SOURCES: CIMB, DICJ, CHINA NBS SOURCES: CIMB, BEA, LAS VEGAS CONVENTION AND VISITORS AUTHORITY
Another factor that drives gaming growth is additional capacity such as hotel rooms and gaming tables. Using Las Vegas as an example, gaming revenue is often correlated with hotel room inventory on a yoy basis. As Las Vegas added capacity in terms of rooms, this has allowed more visitors to visit the city and spend more nights in Las Vegas which has translated into higher gaming revenue. This is especially true during the beginning periods of gaming growth in Las Vegas. Furthermore, an increase in hotel room inventory has also resulted in an increase in hotel occupancy rates. Hence over time, increased room inventory does not translate into an oversupply situation but instead allows more visitors to spend more time in Las Vegas. As Indochina is still in its infancy in terms of hotel and gaming capacity, we believe that the region would see similar gaming growth patterns brought about by additional room capacity as that of an early Las Vegas. Another driver for long-term visitation growth into Cambodia are infrastructure improvements to the existing airports such as runway additions, terminal enhancements or an increase in the number of routes which can all add to visitation growth. For example, airlines are expected to add new routes into Cambodia from areas such as Doha, Manila, Jakarta, and Dubai, along with several cities in India. Also, the airports in Cambodia will seek to double passenger capacity from 5 million to 10 million by 2015. A new international airport for Phnom Penh is
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also being planned. Currently, about 360 weekly flights operate into Cambodia, compared to 160 weekly flights in 2010. As a comparison, Las Vegas McCarran International Airport undertook a major renovation in 1985-1987 (known as McCarran 2000), which included a new central terminal, new parking facility, additional runways, additional gates, enhanced passenger assistance points, along with better infrastructure leading into the airport. At the end of the renovation in 1987, passenger volume spiked 25% yoy at McCarran. Furthermore, in 1998, the D Gates SE and SW wings opened which added 28 additional gates at McCarran. Passenger volume increased 12% in 1999 and 9% in 2000 vs. 0% passenger volume in the preceding years.
Figure 30: Las Vegas McCarran International Airport passenger volume growth
Volume increase 60 30% during McCarran Volume spiked Title: 2000 airport after 28 Source: expansion additional 25% 50 gates 20% Please fill in the values above to have them entered in your report 40 15%
30 10%
5% 20 0% 10 -5%
0 -10%
1975 1976 1977 1978 1984 1985 1986 1987 1992 1993 1994 1995 1996 2001 2002 2003 2004 2009 2010 2011 1971 1972 1973 1974 1979 1980 1981 1982 1983 1988 1989 1990 1991 1997 1998 1999 2000 2005 2006 2007 2008
Passenger yoy
SOURCES: LAS VEGAS CONVENTION AND VISITORS AUTHORITY
Figure 31: Las Vegas room supply and gaming growth yoy Figure 32: Las Vegas hotel occupancy and inventory growth rates
30.0% 100.0% Title: 30.0% Title: Source: Source: 25.0% 25.0% 95.0% 20.0% Please fill in the values above to have them 20.0%entered in your report Please fill in the values above to have them entered in your report 90.0% 15.0% 15.0%
10.0% 85.0% 10.0%
5.0% 5.0% 80.0% 0.0% 0.0% 75.0% -5.0% -5.0%
-10.0% 70.0% -10.0%
-15.0%
hotel rev occupancy rate (lhs) hotel yoy (rhs)
SOURCES: LAS VEGAS CONVENTION AND VISITORS AUTHORITY SOURCES: LAS VEGAS CONVENTION AND VISITORS AUTHORITY
2.4 Naga2 – the next growth driver During November 2012, NagaCorp broke ground on its newest property, Naga2, which is expected to open in late-2015 or early-2016. Naga2 (called TSCLK complex) is located about 200 metres from the current NagaWorld complex. Naga2 will include two 5-star hotel towers with a total of 1,033 hotel rooms. In addition, an expected 50 VIP gaming suites will be included to cater to high-end VIP players. The GFA for the hotel is 43k sq m.
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A total of 500 gaming machines and 200-300 gaming tables are expected to be added and the property will also include retail space along with MICE/theatre facilities. The GFA for the retail/gaming and MICE/theatre is 21.6k and 2.3k sq m respectively. Naga2 and NagaWorld will be connected via a shopping tunnel called NagaCity Walk. The total NagaCity Walk GFA is 15.8k sqm.
Figure 33: Naga2 sq m breakdown Figure 34: Naga2 construction site
GFA (sqm) Net floor area (sq m)
Hotel 43,003 32,705
Retail/gaming 21,647 16,705
VIP suites 9,276 7,026
MICE/Theatre 2,325 2,134
Carpark 21,369 19,317
NagaCity Walk (street level) 7,889 1,568 NagaCity Walk (underground level) 7,889 4,553 SOURCES: COMPANY REPORTS SOURCES: COMPANY REPORTS
Figure 35: Entire Naga Complex Figure 36: Naga2 complex
SOURCES: COMPANY REPORTS SOURCES: COMPANY REPORTS
Figure 37: NagaWalk Figure 38: Naga2 location
SOURCES: COMPANY REPORTS SOURCES: COMPANY REPORTS
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Figure 39: 2015/2016 Naga Complex
NagaWorld (Dec 2012) NagaWorld (Dec 2013) Naga2 Combined % change from 2012
Gaming tables 138 170 250 420 204%
Gaming machines 1,470 1,500 500 2,000 36%
Hotel rooms 690 660 1,033 1,693 145%
Private VIP suites 0 7 50 57 -
Retail space (sqm) 381 381 18,738 19,119 4918%
MICE/Theatre facilities (seating capacity) 750 750 4,000 4,750 533%
Parking spaces 60 60 533 593 888% SOURCES: CIMB, COMPANY REPORTS
Naga 2 will be constructed at a total cost of US$369m (US$275m for the TSCLK Complex and US$94m for NagaCity Walk). NagaCorp will not bear any of the capex for this project as founder and CEO Dr. Chen has agreed to fund the venture independently, via a special vehicle. Upon completion of the project, the properties will be transferred to NagaCorp and the company will issue new shares and / or convertible bonds to Dr. Chen worth US$369m. The convertible bonds can be exchanged into 1.56 billion shares (current shares outstanding at 2.3 bn) at a price of HK$1.84 each. Assuming full conversion of the shares, Dr. Chen would then hold roughly 65% of the total shares of NagaCorp compared to his 42% holding currently. We have already factored in the share dilution into our target price which is based on an EV/EBITDA multiple. Naga2 currently comprises 26% of our target price for NagaCorp at HK$2.05 per share. This is assuming a 15% discount rate, a 30% ROIC and a target EV/EBITDA multiple of 14x.
2.5 NagaCorp mass gaming strategy During 2012, NagaCorp’s mass market revenue grew 26% yoy to US$165.8m, making up 60% of the company’s total revenue. This was driven by a 24% yoy increase in public floor gaming table revenue and a 28% yoy increase in electronic gaming revenue. Public floor buy-ins increased by 34% yoy, and electronic gaming machine bill-ins increased by 28% yoy. We believe that the increase in mass gaming was primarily driven by a combination of stronger visitations to Cambodia (up 24% yoy in 2012 vs. 15% in 2011), an increase in the number of gaming machines (an increase of 340 machines in 2012), an increase in the number of gaming tables (22 tables from NagaRock and Saigon Palace combined) along with an increase in the minimum bet size limits on the mass gaming floors from US$20 to US$30. NagaCorp does not offer any comps to mass players, with the exception of complimentary food. NagaWorld’s mass gaming growth will be driven by continued tourism growth in Cambodia, in both the short-term and long-term, from improved infrastructure along with increased capacity from Naga2. Besides the macro factors, the higher table limits, along with the continued ramp-up of segmented premium mass focused areas such as NagaRock, Saigon Palace and the Aristocrat Private Club will help to drive total mass gaming revenue. Aristocrat is expected to add 5 tables this year. NagaCorp has set up sales offices in Bangkok (September 2012) and Ho Chi Minh City (May 2012) in order to market NagaWorld to mass market gamers in those countries. While they have gotten off to a slow start in 2012, we expect
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these offices to see gradual and improved traction in 2013 in terms of bringing additional visitors to NagaWorld. The Thailand marketing efforts should pay off in the form of strong premium-mass gaming flow due to the higher spending power of Thais relative to visitors from Indochina. In addition, in May 2012, the company had set up a luxury bus service from Ho Chi Minh City to NagaWorld directly. These luxury buses ran 4-6 times per week in 2012; the company plans to increase the frequency to 10 buses per week in 2013. On average, NagaWorld receives about 25 tour buses daily both self-owned and non-owned. NagaCorp often offers various bus+hotel promotions for Vietnamese tourists. For 2013 and 2014, we are currently forecasting NagaCorp’s public buy-ins to be relatively steady at 35% and 32% yoy growth respectively. Overall mass gaming will be mainly driven by continuous tourism growth to Cambodia along with the continued ramp-up for the premium mass areas such as NagaRock and Saigon Palace. NagaRock already accounts for about 20% of NagaWorld’s mass gaming revenue. While the Aristocrat Private Club will add to NagaCorp’s overall mass gaming revenue, we estimate that the ramp-up is likely to be gradual. Our overall public buy-in estimate is conservative as we do not think that NagaCorp will add significant capacity to mass gaming until Naga2 opens. For electronic gaming, we are forecasting a 25% increase in bill-ins for 2013 which will be mainly driven by the full-year contribution of the 92 gaming machines from Rapid 2, and the 333 machines from NagaRock and Saigon Palace. The company also projects another 30 gaming machines to be added this year. We are projecting a gradual decline in gaming machine bill-ins to 22% and 20% yoy growth in 2014 and 2015, respectively, assuming no significant capacity additions.
Figure 40: NagaWorld luxury bus exterior Figure 41: NagaWorld luxury bus interior
SOURCES: VIETNAMTRAVELGUY.COM SOURCES: COMPANY REPORTS
2.6 NagaCorp VIP strategy During 2012, junket floor gaming revenues increased by 18% yoy to US$95m. VIP revenue made up 34% of total revenue vs. 36% in 2011, which was helped by a 17% yoy increase in rollings. NagaCorp pays a 1.7% commission to junkets and has a conservative credit policy where it issues credit on a case-by-case basis to the largest junkets. NagaCorp currently utilises 30 junkets; the top 5 junkets contribute the majority of the rollings. While the majority of the junkets currently target low- to middle-end VIP players from Malaysia, future junket business is likely to come from the underpenetrated markets of Vietnam, China and Thailand. For the current VIP business, we expect continued low volatility due to conservative credit policies, in addition to a low VIP per hand table limit of US$24k.
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The 5 VIP suites featuring 6 gaming tables opened in January 2013. NagaCorp may also open another 2 suites with 2 additional tables. Within these suites, the table limit per hand will likely be higher vs. the normal table limit of US$24k per hand at the standard VIP gaming area. The check-in at the VIP suites will also likely be higher as compared to an average of US$150k at the typical VIP gaming area. The final table limits and minimum check-ins will be determined by the junkets that bring the customers into these playing areas. Finally, these types of VIP suites will be carried over into Naga2 with an expected 50 suites in the new building. To manage revenue and margin volatility in the larger per hand gaming suites, the company will likely enter into a revenue sharing payment system with the junkets based on winnings, as opposed to a straight commission system which NagaCorp is currently utilising. NagaCorp is still in the process of determining the specifics of the revenue share programme with the junkets. For 2013 and 2014, we are forecasting NagaCorp’s VIP check-in to increase by 14% and 13% yoy, respectively. Our forecasts call for decelerating VIP check-in growth due to a higher base in previous years (up 36% and 17% yoy in 2011 and 2012 respectively). In addition, we believe that some of the VIP players may be switching to play in more premium-mass areas such as NagaRock. We have only factored in marginal upside from the VIP suites into our forecasts since the suites are not yet open for gaming activities. The VIP suite minimum check-in will be substantially higher than the standard VIP check-in; hence upside to our VIP forecasts is possible once we see evidence of higher actual check-ins. 2.7 NagaCorp non-gaming strategy NagaCorp’s 2012 non-gaming revenue comprising hotel, food/beverage and entertainment increased by 46% yoy to US$18m. Specifically, room revenue grew by 36%, food and beverage increased 54% and entertainment/others grew by 37%. Similar to 2011, non-gaming revenue made up 6% of total group gross revenue. During the year, the company opened 200 new rooms targeting the lower-end Vietnamese grind crowd. With room rates averaging around US$70 per night, this should continue to drive increased visitation. Despite the increase in room inventory, the average occupancy rate increased to 83% in 2012 vs. 78% in 2011. NagaWorld has won multiple tourism awards such as the Best Leisure Resort in Cambodia, Best 5-Star Hotel of the Year in Cambodia and Best Integrated Entertainment Destination in Cambodia at the Vietnam International Tourism Exhibition in 2012. These recognitions should help to drive the company to bring in additional tourism from the region. In 2012, NagaWorld also added two flagship luxury boutiques, Cartier and Piaget. This is the first time that these brands have entered Cambodia. With these anchor brands, we believe that NagaWorld can eventually attract other world-leading brands onto its property to further enhance non-gaming revenue. Rolex is expected to open in March with an additional two more retailers targeted for 2H13. For 2013 and 2014, we are forecasting a 20% and 10% yoy increase in non-gaming revenue. Our forecasts are conservative due to capacity constraints at the current property in terms of significant addition of additional hotel or mass retail spaces. We believe that overall non-gaming growth will come from the full year contribution the new lower priced hotel rooms which were opened in 2H12.
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Figure 42: Operational forecasts
Revenue breakdown (US$m) 2010 2011 2012 2013F 2014F 2015F
Income from tables 96 143 173 211 259 319 % of total 64% 64% 62% 63% 64% 65% Income from gaming machines 45 69 88 100 122 147 % of total 30% 31% 32% 30% 30% 30% Hotel, food, beverage 10 12 18 22 24 26 % of total 7% 6% 6% 6% 6% 5%
Public floor gaming tables Buy-ins 204 259 348 470 621 807 yoy % 35% 27% 34% 35% 32% 30% Revenue 42 63 78 103 137 178 yoy % 69% 51% 24% 33% 32% 30% Win rate 20% 24% 22% 22% 22% 22% % of revenue 28% 28% 28% 31% 34% 36%
Electronic gaming machines Bills-in 538 777 995 1,244 1,518 1,822 yoy % 149% 44% 28% 25% 22% 20% Slot revenue 35 69 88 100 122 147 yoy % 144% 97% 28% 14% 22% 20% Upfront commitment fee 10 10 10 0 0 0 Win rate 13% 12% 12% 12% 12% 12% % of revenue 30% 31% 32% 30% 30% 30% Win per unit $ 33,806 60,804 59,812 66,779 81,470 97,765 yoy % 46% 80% -2% 12% 22% 20% Revenue share % to Naga 51% 74% 77% 70% 70% 70%
Junket floor gaming tables Rollings 2,377 3,238 3,787 4,317 4,878 5,658 yoy % 3% 36% 17% 14% 13% 16% Revenue 54 80 95 108 122 141 yoy % 1% 48% 18% 14% 13% 16% Win rate 2% 2% 3% 3% 3% 3% % of revenue 36% 36% 34% 32% 30% 29% Number of VIP visitors 7,928 16,019 25,090 26,345 27,662 29,045 Number of gaming machines 1,032 1,130 1,470 1,500 1,500 1,500
Hotel Hotel occupancy rate 60% 78% 83% 85% 85% 85% Hotel revenue 4 4 6 7 8 8 yoy% -33% 15% 36% 20% 10% 10% % of revenue 2% 2% 2% 2% 2% 2%
Food, beverage and other 6 8 12 15 16 18 yoy% 27% 52% 20% 10% 10% % of revenue 4% 4% 4% 4% 4% 4% SOURCES: CIMB, COMPANY REPORTS
2.8 SWOT analysis
Figure 43: SWOT analysis Strengths Opportunities l Monopoly status in Phnom Penh l Strong economic growth in Indochina l Diverse gaming base in terms of VIP/Mass l Naga2 to fuel next round of growth l Strong government support l Monetization of high end VIP market
Weakness Threats l Over-reliance on Vietnam mass gaming market l Legalization of gaming in Vietnam l Lack of diversification in VIP customers l Competition from other casinos in Cambodia l Capacity constrained for non gaming activities l Economic slowdown in the region
SOURCES: CIMB
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3. RISKS 3.1 Competition within Cambodia As mentioned earlier, we estimate that there are roughly 30 smaller border casinos on the border of Cambodia and Thailand. While there is no official data on the gaming revenue from these establishments, we do not believe that the border casinos will pose a significant competitive threat to NagaCorp. The border casinos mainly target a lower-tiered grind market where the minimum bet at these casinos could be less than a few dollars which is a different market than the premium-mass segment, VIP segments and integrated entertainment resort clientele that NagaCorp aims to attract. Apart from the border casinos, casino projects have also been started in other areas of Cambodia, but they have not been too successful. One such project is the Bokor Highland Resort, two hours south of Phnom Penh near the town of Kampot. This property opened in the middle of 2012 but has so far not received significant traction. One reason for this could be the significant travel time from Phnom Penh as a bus ride would take around three-and-a-half hours. In addition, there are minimal bus facilities from the Bokor Highlands to Kampot Town. Also, based on various Internet reviews, travellers have noted that the resort lacks facilities and only includes bare necessities such as two restaurants, a children’s recreational area and the casino itself. Other common complaints include the casino’s poor ambience, poor quality restaurants, and the absence of any other attractions in the area apart from the casino. While we do not rule out that places such as Bokor Highlands could become successful once it starts to ramp up, these casinos are still far behind NagaWorld in terms of branding, execution track record and customer traction. For example, the Ha Tien Vegas Resort, an integrated gaming resort located in Southern Cambodia close to the Vietnam border, recently closed its doors due to the lack of gamblers. In addition, while future major casino projects could be announced for other areas of Cambodia, those projects still have to secure financing which could be difficult given the unknown success factor of those projects. With NagaWorld already established as a casino operator within a large centralised area, visitors who come to Cambodia for the sole purpose of gambling have little reason to go elsewhere, especially when factoring in travel time and customer service, along with the non-gaming amenities that NagaWorld offers.
Figure 44: Bokor Highlands Figure 45: Bokor Highlands rendering
SOURCES: TWICSY.COM SOURCES: WSJ
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3.2 Competition from other markets The closest gambling centres to Phnom Penh are Singapore and Malaysia and, to a lesser extent, Macau. We do not believe that Phnom Penh competes with these markets directly for gamblers as each gaming market is somewhat mutually exclusive. We estimate that about 35-40% mass market gamers into NagaWorld are from Southern Vietnam, 30% are Cambodians with foreign passports, and the remaining coming from various parts of Asia. 70% of the VIP gamers are low- to middle-end VIP players (in-terms of check-in) from Malaysia. These visitor demographics are different from other gaming hubs within the region Mass market visitation from Southern Vietnam should continue to grow with tourist arrivals from Vietnam, especially considering the ease of travel from Ho Chi Minh City to Phnom Penh (240km, 6 hours by bus). On the VIP side, with a minimum US$15,000 check-in, these types of players can receive the type of VIP services that they would normally be priced out of in their home markets. In addition, NagaCorp pays its overseas junkets a 1.7% commission to bring in VIP players. This commission rate is higher than the 1.25% commission rate in Macau and can incentivise junkets to bring players into Cambodia. NagaCorp is able to offer higher commission rates and better service for low- to mid-end VIP players due to the company’s low cost structure compared to other gaming markets. For example, a dealer’s salary is US$130 per month in NagaWorld vs. US$2,500 per month in Macau. Furthermore, land costs and entertainment are lower in Cambodia compared to other markets. Due to these factors, we believe that NagaCorp is not targeting the same types of ultra- high end VIP players that are being targeted in other markets and that NagaWorld has its own specific advantages in terms of drawing in VIP crowds to its property. Since the majority of NagaWorld’s mass gaming patrons are from Vietnam, one competitive risk could be if Vietnam decides to open its own casino and allow its citizens to gamble.
Figure 46: Formerly named MGM Grand Ho Tram Beach rendering
SOURCES: ASIABOOKING.COM.VN
MGM Resorts and Asian Coast Development (ACDL) have developed what was formerly known as MGM Grand Ho Tram Beach which is an integrated resort in the beach town of Ho Tram in Vietnam’s Ba Ria-Vung Tau province, 125 km southeast of Ho Chi Minh City. The Ho Tram beach area is being developed into an international resort area. However, on March 4, MGM Hospitality terminated its management, collaboration and assistance agreement with ACDL as the project has failed to achieve certain pre-opening milestones.
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The formerly called MGM Grand Ho Tram Beach is a US$4.2billion project which will feature two hotel towers with 1,100 rooms, a conference centre, retail, restaurants, 90 gaming tables and 1,000 electronic games. The first tower was originally scheduled to open in early 2013 which will include 540 rooms, 500 electronic games and 90 gaming tables. However, the first tower has seen a delay in terms of its licensing approval for gaming and hence funding has been pulled from the project for the time being. We expect the first tower to have a delayed opening past its original scheduled opening of 1Q13. The opening will depend on government approval for the gaming license and will also depend on the timing of the new management of which both there is currently no visibility. The second tower started ground breaking in 4Q12 but we have no visibility as to when it will open. While the opening of the formerly named MGM Grand Ho Tram would increase gaming competition within Indochina (under new management), we do not believe that it will have a significant impact on NagaCorp since Vietnamese citizens would not be allowed at the gaming facilities under current Vietnamese law. With the exception of a state-run lottery, Vietnamese citizens are prohibited from gambling in Vietnam. There are a few resorts which run small-scale electronic gaming machines, but these cater to foreigners only, and these establishments are required to receive approval from the Prime Minister’s Office. Vietnamese citizens are not allowed to enter these facilities. We believe that the Vietnamese government could consider changing its stance on not allowing locals to enter into casinos. If this were to occur, there could be some negative spill-over effects to NagaCorp in terms of visitation. However, the degree of the impact will still depend on any other potential stipulations of the law, including the amount of a possible entry fee as is the case in Singapore. In addition, we believe that to allow locals to gamble, Vietnam would have to construct a regulatory framework to deal with possible side effects of gaming such as corruption, crime and balancing social ills with benefits such as tax receipts. Hence, we feel that Vietnam allowing its citizens to gamble domestically, while possible, is not likely to occur for some time. 3.3 Gaming license and anti-money laundering NagaCorp has an exclusive gaming license within a 200km radius of Phnom Penh until 2035 and a casino license until 2065. The probability of the government revoking these licenses is minute, in our view. The Prime Minister of Cambodia, Hun Sen, enjoys strong support within Cambodia, and his political party the Cambodian People’s Party (CPP) won the National Assembly election by the widest margin of popular votes in 2008. We expect the Cambodian People’s Party to again dominate in the 2013 National Assembly elections as the Party continues to have strong support within Cambodia. Dr. Chen, the CEO and founder of NagaCorp, has a close relationship with Hun Sen and is also one of his economic advisors. With the strong support of Cambodia’s leading political party, we do not believe that NagaCorp is under any political risk to have its gaming license altered. NagaCorp uses Hill & Associates which is a global risk management and security firm to conduct independent reviews of the company’s AML policies and internal controls. The reviews are based on compliance with the Financial Action Task Force (FATF) guidelines. FATF guidelines are based on 36 government organisations to establish standards and to promote the implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other threats to the international financial system. Its recommendations are the international standard for combating money laundering and the financing of terrorist activities. Hill & Associates conducts audits on NagaCorp twice a year and after their audits have found NagaCorp to be in full compliance with FATF recommendations.
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NagaCorp Ltd March 21, 2013
3.4 Economic downturn and credit extension Gaming activities are considered a consumer discretionary activity and will often do well during periods of economic prosperity and fall during periods of economic weakness. NagaCorp’s gaming revenue is likely to be negatively affected by periods of weak economic growth. However, since NagaCorp has zero debt and issues limited credit to junkets, the company is still likely to maintain its strong balance sheet even as gaming revenues decline during an economic downturn. 3.5 Further share placement NagaCorp has undergone two share placements in 2012 and one top up placement in 2013. The share placements in 2012 were done by Dr. Chen. The first placement occurred after market on April 2 of which 214 million shares were placed at HK$3.04 which was a 15% discount to the previous day’s closing price. Dr. Chen’s holdings were reduced from 60% to 50%. A second placement was done before market hours on November 20 of which 90 million shares were placed at HK$4.43 which was a 7% discount to the previous closing price. Dr. Chen’s holdings were further reduced from 50% to 46%. While NagaCorp’s share prices have shown volatility around the share placements, we note that NagaCorp’s stock has already surpassed the placement prices. A top up placement was done on March 13 after market close in which 200m new shares at an 8.3% discount to the HK$6.6 closing price were issued to the market. The total shares outstanding increased by 9.6% to 2.28bn shares outstanding and Dr. Chen’s holdings were reduced from 45.7% to 41.7%. From the US$156m in proceeds raised, the majority of it will be used to fund projects such as a new private VIP airport terminal (US$15m), improved ground transportation fleet (US$2m), NagaWorld property improvements (US$20m), promotional and marketing projects (US$5m) and with the remaining balance used as working capital for developing the VIP business. As Dr. Chen’s holdings are expected to climb to 65% in late-2015/early-2016 upon the completion of Naga2, we expect Dr. Chen to sell down addition shares in order to improve free float and to maintain his holdings below 50%.
4. FINANCIALS 4.1 Key financial metrics with other gaming markets In the charts below, we present some key financial and operational comparisons between NagaCorp and other gaming markets in Asia. We note that NagaCorp is above the industry averages in terms of gaming growth rates, mass gaming as a % of revenue, low tax rates, dividend pay-out ratios, EBITDA margin, and ROE. NagaCorp is slightly above its industry peers for receivables as a percentage of assets and slightly below the industry average for net cash as a percentage of assets. NagaCorp has the highest gaming growth rate, highest mass gaming ratio, lowest gaming tax rate, highest pay-out ratio and highest EBITDA margin in the region.
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NagaCorp Ltd March 21, 2013
Figure 47: Gaming growth rates across markets Figure 48: VIP as a % of gaming revenue 2012
25% 80% Title: Title: Source: Source: 70% 20%
60% Please fill in the values above to have them entered in your report Please fill in the values above to have them entered in your report 15% 50% 10% 40%
5% 30%
0% 20% 2012 2013 2014 2015 10% -5%
0% -10% Singapore Malaysia Macau NagaCorp
Singapore Malaysia Macau NagaCorp VIP % average
SOURCES: CIMB SOURCES: CIMB, COMPANY REPORTS
Figure 49: Gaming tax rate 2012 Figure 50: Dividend pay-out ratio 2012
45% 80% Title: Title: Source: Source: 40% 70%
35% 60% Please fill in the values above to have them entered in your report Please fill in the values above to have them entered in your report 30% 50% 25% 40% 20% 30% 15% 20% 10%
5% 10%
0% 0% Singapore Malaysia Macau NagaCorp Singapore Malaysia Macau NagaCorp
tax rate average Payout ration average
SOURCES: CIMB, COMPANY REPORTS SOURCES: CIMB, COMPANY REPORTS
Figure 51: EBITDA Margin 2012 Figure 52: ROE 2013
60% 50% Title: Title:
45% Source: Source: 50% 40% Please fill in the values above to have them entered in your report Please fill in the values above to have them entered in your report 35% 40% 30%
30% 25%
20% 20% 15%
10% 10% 5%
0% 0% Singapore Malaysia Macau NagaCorp Singapore Malaysia Macau NagaCorp
Margin average ROE average
SOURCES: CIMB, COMPANY REPORTS SOURCES: CIMB
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NagaCorp Ltd March 21, 2013
Figure 53: Receivables % of total assets 2012 Figure 54: Net cash % of total assets 2012
8% 18% Title: Title: Source: Source: 7% 16%
14% 6% Please fill in the values above to have them entered in your report Please fill in the values above to have them entered in your report 12% 5% 10% 4% 8% 3% 6% 2% 4%
1% 2%
0% 0% Singapore Malaysia Macau NagaCorp Singapore Malaysia Macau NagaCorp
Receivables % of net current assets average Net cash % of assets average
SOURCES: CIMB, COMPANY REPORTS SOURCES: CIMB, COMPANY REPORTS
4.2 Revenue growth We are forecasting a 27% top-line CAGR from 2011 to 2015. For 2013, we currently project a 20% increase in revenue to $333m (compared to 25% growth in 2012). For 2014-2015 we project stronger revenue growth rates of 21-22% due to stronger traction at the VIP suites. We estimate 2013 sales to be driven by a 33% increase in public gaming floor revenue, a 14% increase in slot revenue and a 14% increase in VIP revenue. We forecast that overall casino revenue (public gaming floor + VIP + slots) will take up 94% of sales, similar to 2012. We also project the public floor gaming segment to outperform the VIP segment with public floor gaming at 31% of revenue in 2013 vs. 28% in 2012. For the slot revenue, while we are currently projecting a 25% increase in bill-ins for 2013, we estimate that only 70% of the projected revenue assuming an 11.5% win rate will be booked to NagaCorp. The reason is due to the revenue sharing split with slot machine operators. For example, in November 2012, NagaCorp entered into an agreement with Zhiyou International where Zhiyou will supply 150 gaming machines in Saigon Palace and in exchange, NagaCorp will receive a one-time $10m fee plus 70% of the revenue generated by the machines.
Figure 55: NagaCorp revenue breakdown (US$m)
600 Title: Source: 500 26 Please fill in the values above to have them entered in your report 400 24 141
22 122 300 18 108 147 12 200 95 122 80 100 88 100 69 178 137 103 63 78 0 2011 2012 2013F 2014F 2015F
Public floor Electronic gaming VIP Non gaming
SOURCES: CIMB, COMPANY REPORTS
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NagaCorp Ltd March 21, 2013
Figure 56: % of revenue breakdown
2011 2012 2013F 2014F 2015F Public floor 28% 28% 31% 34% 36% Electronic gaming 31% 32% 30% 30% 30% VIP 36% 34% 32% 30% 29% Non gaming 6% 6% 6% 6% 5% Total 100% 100% 100% 100% 100% SOURCES: CIMB, COMPANY REPORTS
4.3 Margins 83% of gross profit came from the mass gaming and non-gaming segment in 2012, with the remaining 17% coming from junkets and VIP. Gross margins for mass and non-gaming are considerably higher at 91% vs. 37% for the junket and VIP side. The margin differential is mainly due to the commission that is paid out to junkets on the VIP side. Gross and EBITDA margins have been relatively steady since 2011 at 73% and 50% respectively. On the VIP side, NagaCorp has historically used a fixed commission model of 1.7% of rolling chip turnover to the junkets. In order to manage risk for the higher table limit VIP suites, NagaCorp is considering moving to a revenue sharing model with the junkets. A revenue sharing model would protect margins in the case of low hold rates. For example in a revenue sharing model, if the casino wins less, the commission paid out to the junket is also less. In a fixed commission model, if the casino wins less, the commission does not decline since the commission is based on rolling chip turnover and not on the revenue. We are currently forecasting gross and EBITDA margins to remain relatively steady over the next few years at 73-74% for gross and 49-50% for EBITDA respectively. Our margin forecasts could be conservative especially considering the fact that the higher margin public gaming floor is projected to take up a higher percentage of overall revenue. NagaCorp has a tax agreement with the Cambodian government that extends until 2018. Under this scheme, NagaCorp pays a fixed tax per year. In 2012, the company paid US$370k in tax per month and this amount increases by 12.5% every year until 2018. The effective tax rate for the company was approximately 4.1% and 3.8% in 2011 and 2012 respectively. NagaCorp is currently in discussions with the government on extending the tax agreement beyond 2018.
Figure 57: Margins breakdown
2010 2011 2012 2013F 2014F 2015F Gross margin 70.9% 73.2% 72.9% 73.3% 73.8% 74.2% EBITDA margin 45.7% 49.3% 49.7% 49.6% 49.4% 49.2% Pretax profit margin 31.8% 42.9% 42.2% 43.2% 43.9% 44.5% Net profit margin 41.3% 56.2% 55.7% 56.7% 57.4% 57.9% SOURCES: CIMB, COMPANY REPORTS
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NagaCorp Ltd March 21, 2013
Figure 58: Gross profit US$m Figure 59: EBITDA US$m
400 100% 300 Title: 100% Title:
90% Source: 90% Source: 350 250 80% 80% 300 Please fill in the values above to have them entered in your report Please fill in the values above to have them entered in your report 70% 70% 200 250 60% 60%
200 50% 150 50%
40% 40% 150 100 30% 30% 100 20% 20% 50 50 10% 10%
0 0% 0 0% 2011 2012 2013F 2014F 2015F 2011 2012 2013F 2014F 2015F
Gross profit yoy EBITDA yoy
SOURCES: CIMB, COMPANY REPORTS SOURCES: CIMB, COMPANY REPORTS
Figure 60: Income statement (US$m) 2010 2011 2012 2013F 2014F 2015F
Revenue 150.5 223.8 278.8 333.2 404.5 491.9 Cost of sales -43.8 -60.0 -75.6 -89.0 -106.0 -126.9 Gross profit 106.7 163.8 203.2 244.2 298.5 365.0 Other income 3.8 0.2 0.9 1.1 1.3 1.6 Administrative expenses -27.4 -28.3 -37.1 -43.3 -52.6 -63.9 Amortization of casino license premium -3.5 -3.5 -3.5 -3.5 -3.5 -3.5 Other operating expenses -32.2 -37.9 -46.3 -55.4 -67.3 -81.8 + Amortization of casino license premium 3.5 3.5 3.5 3.5 3.5 3.5 + Depreciation and amortization 10.4 12.2 16.6 17.3 18.2 19.1 + Other gain / loss adjustments 7.6 0.2 1.2 1.5 1.8 2.2 EBITDA 68.8 110.3 138.6 165.3 200.0 242.1 Amortization of casino license premium -3.5 -3.5 -3.5 -3.5 -3.5 -3.5 Depreciation and amortization -10.4 -12.2 -16.6 -17.3 -18.2 -19.1 EBIT 54.9 94.5 118.4 144.5 178.3 219.5 Finance revenues 0.7 1.7 0.5 0.6 0.7 0.8 Finance costs 0.0 0.0 0.0 0.0 0.0 0.0 Other Gain/(loss) on disposal of PPE -0.2 -0.2 -1.5 -1.5 -1.5 -1.5 Impairment loss on trade receivables -7.2 0.0 0.6 0.6 0.6 0.6 Exchange gain/(loss) -0.1 0.0 -0.3 -0.3 -0.3 -0.3 Profit before income tax 47.9 96.0 117.6 143.9 177.7 219.1 Income tax (expenses)/credits -3.9 -4.0 -4.5 -5.3 -6.5 -7.9 Profit attributable to equity holders 44.1 92.0 113.1 138.5 171.2 211.2
DPS (US$ cents) (declared) 1.48 3.09 3.84 4.29 5.30 6.54 EPS (US$ cents) 2.12 4.42 5.43 6.07 7.50 9.25 Payout ratio 70% 70% 71% 71% 71% 71%
Gaming tax % of gross gaming revenues -3% -2% -2% -2% -2% -2% Admin % of net revenues -18% -13% -13% -13% -13% -13% Other income % of net revenues 3% 0% 0% 0% 0% 0% Other operating expenses % of net revenues -21% -17% -17% -17% -17% -17% Other gains/adjustments % of net revnue 5% 0% 0% 0% 0% 0% Interest income % of sales 0% 1% 0% 0% 0% 0%
Gross margin 71% 73% 73% 73% 74% 74% EBITDA margin 46% 49% 50% 50% 49% 49% Pretax profit margin 32% 43% 42% 43% 44% 45% Net profit margin 41% 56% 56% 57% 57% 58%
YOY % growth Net revenues 28% 49% 25% 20% 21% 22% COGS -6% 37% 26% 18% 19% 20% EBITDA 73% 60% 26% 19% 21% 21% Net profit 73% 109% 23% 22% 24% 23% SOURCES: CIMB, COMPANY REPORTS
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NagaCorp Ltd March 21, 2013
4.4 Balance sheet metrics Due to stringent credit terms to junkets, NagaCorp does not have a high receivables balance. Receivables have averaged only US$23m over the past three years and have only comprised 6% of total assets on average. NagaCorp also has not had any debt on its balance sheet over the past three years. We estimate that its operating cash flow is sufficient for funding capex requirements.
Figure 61: Receivables (US$m) % of assets
900 9% Title:
800 8% Source:
700 7% Please fill in the values above to have them entered in your report 600 6%
500 5%
400 4%
300 3%
200 2%
100 1%
0 0% 2010 2011 2012 2013 2014 2015
Receivables Assets %
SOURCES: CIMB, COMPANY REPORTS
NagaCorp had a cash balance of US$58m at the end of 2012. Cash as a percentage of assets has increased from 7% in 2010 to 14% in 2012. Due to limited capex requirements from Naga2, the recent top up share placement of US$156m and strong net income growth, we estimate that cash as a percentage of assets can increase to 47% by 2015.
Figure 62: Cash (US$m) % of assets
900 50% Title:
800 45% Source: 40% 700 Please fill in the values above to have them entered in your report 35% 600 30% 500 25% 400 20% 300 15%
200 10%
100 5%
0 0% 2010 2011 2012 2013 2014 2015
Cash Assets %
SOURCES: CIMB, COMPANY REPORTS
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NagaCorp Ltd March 21, 2013
Figure 63: Balance sheet (US$m)
2010 2011 2012 2013F 2014F 2015F
Assets Investment properties 0.6 0.6 0.6 0.6 0.6 0.6 Property and equipment 155.8 187.1 237.6 242.9 254.5 265.3 Intangible assets 87.5 83.9 80.4 77.9 74.9 71.9 Financial assets 0.0 0.0 0.0 0.0 0.0 0.0 Interest in associates 0.0 0.0 0.0 0.0 0.0 0.0 Deferred tax assets 0.0 0.0 0.0 0.0 0.0 0.0 Other non-current assets 3.4 4.4 14.4 14.4 14.4 14.4 Total non current assets 247.3 276.1 333.0 335.9 344.5 352.2
Inventories 0.6 1.2 1.1 1.3 1.6 1.9 Trade and other receivables 24.9 24.4 20.9 25.0 30.3 36.9 Amounts due from related companies 0.0 0.0 0.0 0.0 0.0 0.0 Investments 0.0 0.0 0.0 0.0 0.0 0.0 Restricted cash 21.1 35.5 15.0 15.0 15.0 15.0 Bank balances and cash 22.9 29.3 58.2 241.8 295.6 364.6 Other current assets 5.7 5.2 0.0 0.0 0.0 0.0 Total current assets 75.2 95.5 95.3 283.1 342.5 418.4 Total assets 322.5 371.6 428.3 618.9 687.0 770.6
Liabilities Long-term borrowings 0.0 0.0 0.0 0.0 0.0 0.0 Minority interests 0.0 0.0 0.0 0.0 0.0 0.0 Deferred tax liabilities 0.0 0.0 0.0 0.0 0.0 0.0 Other long-term liabilities 0.0 0.0 0.0 0.0 0.0 0.0 Total non current liabilities 0.0 0.0 0.0 0.0 0.0 0.0
Accounts payable 13.8 18.8 26.0 30.6 36.5 43.7 Short-term borrowings 0.0 0.0 0.0 0.0 Amount due to related companies 0.0 0.0 0.0 0.0 0.0 0.0 Dividends payable 0.0 0.0 0.0 0.0 0.0 Income tax payable 0.0 0.0 0.0 0.0 0.0 Other current liabilities 0.0 0.3 0.4 0.4 0.4 0.4 Total current liabilities 13.8 19.1 26.4 31.0 36.9 44.1 Total liabilities 13.8 19.1 26.4 31.0 36.9 44.1
Total shareholder's equity 308.7 352.5 401.9 587.9 650.1 726.6 SOURCES: CIMB, COMPANY REPORTS
4.5 Cash flow metrics NagaCorp has a steady cash flow, where the main cash outlays are capital expenditure and dividend payments. Capital expenditure was US$60m in 2012 mainly due to the opening of new casino cell areas such as NagaRock and Saigon Palace. For 2013, we are currently forecasting US$30m of capex mainly due to maintenance and the opening of the VIP suites and the Aristocrat Private Club. For 2014 and 2015, we are projecting capex staying at US$30m as the capex for Naga2 will be privately funded by Dr. Chen. The US$30m capex will be mainly used for maintenance along with the projects outlined during the recent top up placement. In terms of operating cash flow, we are forecasting a CAGR of 25% from US$78m in 2010 to US$233m in 2015. This increase will mainly be driven by an increase in pre-tax profit from US$48m in 2010 to US$219m by 2015. Due to the steady cash flow, we also project NagaCorp to maintain its dividend pay-out ratio of around 70%. In 2012, NagaCorp’s absolute dividend increased by 24% yoy to 3.84UScts. This compares to the 109% increase in absolute dividend in 2011. From 2010, to 2015, we currently project absolute dividend CAGR of 35% from 1.48UScts in 2010 to 6.54UScts by 2015.
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NagaCorp Ltd March 21, 2013
Figure 64: Cashflow metrics (US$m) Figure 65: Dividend (US cents) payout ratio
300 7 Title: 71% Title: Source: 250 Source: 6 71% 200 Please fill in the values above to have them entered in your report Please fill in the values above to have them entered in your report 5 70% 150
100 4 70%
50 3 70% 0 2010 2011 2012 2013 2014 2015 2 70% -50
-100 1 70%
-150 0 69% -200 2010 2011 2012 2013 2014 2015
Operating Investing Financing Dividend US cts Payout ratio
SOURCES: CIMB, COMPANY REPORTS SOURCES: CIMB, COMPANY REPORTS
Figure 66: Cashflow statement (US$m)
2010 2011 2012 2013F 2014F 2015F Cash flows from operating activities Profit before tax 47.9 96.0 117.6 143.9 177.7 219.1
Adjustment to reconcile profit before tax to net cash flow Non-Cash Depreciation of property and equipment 10.4 12.2 16.6 17.3 18.2 19.1 Amortization of intangible assets 3.5 3.5 3.5 3.5 3.5 3.5 Gains and losses 7.4 0.3 0.0 0.0 0.0 0.0 Finance revenues -0.7 -1.7 -0.5 -0.6 -0.7 -0.8 Finance costs 0.0 0.0 0.0 0.0 0.0 Other non-cash adjustments -3.2 0.2 -0.2 0.0 0.0 0.0
Working capital adjustment Decrease/(increase) in inventories -0.3 -0.7 0.1 -0.2 -0.3 -0.3 (Increase) in trade and other receivables 15.6 3.7 3.5 -4.1 -5.3 -6.5 Decrease/(increase) in other current assets 5.2 0.0 0.0 0.0 Increase/(decrease) in accounts payable 1.2 2.9 7.2 4.6 5.9 7.2 Increase/(decrease) in other current liabilities 0.0 0.0 0.0 0.0 Cash generated from operations 81.9 116.5 153.1 164.5 199.1 241.2 Income tax paid -4.1 -3.6 -4.5 -5.3 -6.5 -7.9 Other adjustment 3.5 Net cash generated from operating activities 77.8 112.8 152.2 159.1 192.6 233.3
Cash flow from investing activities Purchase of property and equipment -23.5 -45.5 -60.0 -30.0 -30.0 -30.0 Net Investments and proceeds from sale of assets 0.0 0.0 0.0 0.0 0.0 0.0 Purchase of other non-current assets 0.0 0.0 0.0 0.0 0.0 0.0 Interest received 0.7 1.7 0.5 0.6 0.7 0.8 Others -17.1 -14.4 0.0 0.0 0.0 0.0 Net cash generated from/(used in) investing activities -39.9 -58.2 -59.5 -29.4 -29.3 -29.2
Cash flow from financing activities Proceeds from borrowing 0.0 0.0 0.0 0.0 0.0 0.0 Repayments of borrowings 0.0 0.0 0.0 0.0 0.0 0.0 Proceeds from issue of shares 0.0 0.0 0.0 156.0 0.0 0.0 Interest paid 0.0 0.0 0.0 0.0 0.0 0.0 Dividends paid -30.0 -48.2 -63.7 -102.1 -109.4 -135.1 Others 0.0 0.0 0.0 0.0 0.0 0.0 Net cash generated from/(used in) financing activities -30.0 -48.2 -63.7 53.9 -109.4 -135.1
Net increase/(decrease) in cash and cash equivalents 7.9 6.4 29.0 183.5 53.8 69.0 Cash and cash equivalents at beginning of the year/period 15.0 22.9 29.3 58.2 241.8 295.6 Adjustments 0.0 0.0 0.0 0.0 0.0 0.0
Cash and cash equivalents at end of the year/period 22.9 29.3 58.2 241.8 295.6 364.6 SOURCES: CIMB, COMPANY REPORTS
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NagaCorp Ltd March 21, 2013
5. VALUATION AND RECOMMENDATION 5.1 Valuation expansion NagaCorp’s share price has risen by 2x since the beginning of 2012 vs. a 75% average increase in Macau gaming shares, a 3% decline in Singapore gaming shares and a 11% decline in Malaysian gaming shares. For YTD 2013, NagaCorp’s share price has risen by 30% vs. a 12% increase in Macau, a 6% increase in Singapore and a 5% decline for Malaysia. On a consensus forward EV/EBITDA basis, NagaCorp has seen a strong rerating from 3x in 2010 to 9.7x currently vs. its 3-year historical average of 5.5x. In 2013 alone, NagaCorp has seen a 37% increase in its multiple vs. a 5% increase in Macau, a 7% decline in Malaysia, and a 2% increase in Singapore. We believe that the reason for NagaCorp’s strong rerating is due to increased liquidity from Dr. Chen’s previous share placements, along with Cambodia’s relative immunity to the macro and micro issues that have plagued other gaming markets. For example, since NagaWorld mainly targets lower-end VIP players from Malaysia, NagaWorld’s gaming revenue is not greatly affected by a possible economic slowdown in China. Furthermore, NagaCorp is also somewhat immune to the anti-corruption news flow in China which has plagued the Macau gaming shares in 2013. Furthermore, as the Macau, Singapore and Malaysian gaming markets are entering into a period of more moderate growth, NagaCorp’s gaming growth is still likely to be sustained at around 20% due to a strong Indochina economy.
Figure 67: Regional gaming share prices Figure 68: Consensus forward EV/EBITDA
300% 25 Title: Title: Source: Source: 250% 20 Please fill in the values above to have them entered in your report Please fill in the values above to have them entered in your report 200% 15 150%
10 100%
5 50%
0% 0
-50%
Macau NagaCorp Singapore Malaysia Macau NagaCorp Singapore Malaysia
SOURCES: CIMB SOURCES: CIMB
5.2 Where to go from here? We believe that NagaCorp is a long-term rerating story driven by a strong Indochina economy and its monopoly status in Phnom Penh, along with the opening of Naga2. A common way to value NagaCorp is through a peg to the Macau gaming sector in terms of a percentage discount on a EV/EBITDA basis. However, due to NagaCorp’s superior margins, strong balance sheet, diversified gaming base along with an emphasis on non-gaming, we believe that NagaCorp should not be compared to the Macau gaming sector as a whole since many operators in Macau do not share NagaCorp’s strengths in terms of margins and growth. We believe that while not a perfect comparison, Sands China shares the most direct characteristics with NagaCorp in that Sands has the highest margins in Macau, has the most diversified gaming segment (in terms of the mass, VIP and slot split), and also has a strong emphasis on non-gaming such as MICE, retail and F&B. Sands’ percentage of revenue from non-gaming is 12% vs. an average
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NagaCorp Ltd March 21, 2013
of 4% from non-gaming from the other operators. Also VIP as a percentage of gaming revenue in 4Q12 was only 57% for Sands China vs. an average of 71% for the other gaming operators. Finally, on a US GAAP basis, Sands has one of the highest EBITDA margins at 30% vs. an average of 24% for the other operators. Sands China has historically traded on an average forward EV/EBITDA of 14x, which is the long term multiple that we assign to NagaCorp.
Figure 69: Sands China consensus forward EV/EBITDA
18 Title:
16 Source:
14 Please fill in the values above to have them entered in your report 12
10
8
6
4
2
Apr Apr Apr
Aug Aug Aug
May May May
Feb Mar Feb Mar Feb Feb
0 Mar
Oct Oct Oct
Dec Dec Dec Dec Nov Sep Nov Sep Nov Sep Nov
Jan Jan Jan Jun Jan Jun Jun
Jul Jul Jul
- - -
------
------
10 11 12
------
------
- - -
10 10 11 11 12 12
10 11 12 12 13 10 11
10 10 11 11 12 13 12
09 10 10 11 11 12 12 09 10 10 11 11 12 12
10 11 12
EV/EBITDA Avg. +1 stdev -1 stdev
SOURCES: CIMB
Our valuation for Naga2 assumes an EBITDA of US$111m in 2016 which represents an ROIC of 30%. Discounted back three years at 15% gives us an equity value of 26UScts or 2.05HKD in FY13. Naga2 represents 26% of our total equity value for NagaCorp. Our target price of HK$7.81 coupled with a 7% yield represents 34% upside from current levels.
Figure 70: Naga2 valuation Figure 71: NagaCorp valuation
US$m US$m Per share Invested capital 369 EBITDA in FY14 200 ROIC in FY16 30% EV in FY14 2,800 EBITDA 110.70 Total debt - FY14 EV/EBITDA 14.0 FY12 cash 58 Enterprise value 1,550 Equity value 2,858 0.74 Net debt - Naga 2 contribution 0.26 Equity value 1,550 Total equity value (US$) 1.01 # shares fully diluted 3,848,360,982 Total equity value (HK$) 7.81 Equity value/share in FY16 (US$) 0.40 Price on 21 March 2012 6.13 Discount rate 15.0% % Upside 27.4% Dividend yield 6.7% Equity value/share in FY13 (US$) 0.26 Total upside 34.1% Equity value/share in FY13 (HK$) 2.05
# shares fully diluted 3,848,360,982 EV/EBITDA multiple 14.0 SOURCES: CIMB SOURCES: CIMB
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NagaCorp Ltd March 21, 2013
Figure 72: Tgt. Price sensitivity to discount rate and multiple Figure 73: Tgt. Price sensitivity to ROIC and multiple
Naga2 discount rate (horizontal) / EV/EBITDA (vertical) Naga2 ROIC (horizontal) / EV/EBITDA (vertical) 10% 12% 15% 17% 20% 20% 25% 30% 35% 40% 8 7.1 7.03 6.93 6.87 6.79 8 6.5 6.73 6.93 7.12 7.32
10 7.4 7.34 7.22 7.15 7.05 10 6.7 6.98 7.22 7.47 7.71
12 7.8 7.66 7.52 7.43 7.3 12 6.9 7.22 7.52 7.81 8.1
14 8.1 7.98 7.81 7.71 7.56 14 7.1 7.47 7.81 8.15 8.49
16 8.4 8.3 8.1 7.98 7.82 16 7.3 7.71 8.1 8.49 8.88 SOURCES: CIMB SOURCES: CIMB
Figure 74: DCF Valuation
US$m 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 EBITDA (Naga1) 200 242 319 366 421 464 487 511 537 547 yoy growth 21% 21% 15% 15% 15% 10% 5% 5% 5% 2% EBITDA (Naga2) 111 144 180 216 248 273 300 315 yoy growth 30% 25% 20% 15% 10% 10% 5% Total EBITDA 200 242 429 510 601 679 735 784 837 863 yoy growth 21% 21% 77% 19% 18% 13% 8% 7% 7% 3%
Capital expenditures -30 -30 -30 -30 -30 -30 -30 -30 -30 -30 Change in working capital 0 0 1 1 1 1 1 2 2 2 Taxes -6 -8 -10 -13 -15 -17 -18 -20 -21 -22
Free cashflow 164 205 389 468 557 633 688 736 788 814 Shares outstanding (m) 3,848 3,848 3,848 3,848 3,848 3,848 3,848 3,848 3,848 3,848 FCF/share 0.043 0.053 0.101 0.122 0.145 0.165 0.179 0.191 0.205 0.211
Discount rate 15% 15% 15% 15% 15% 15% 15% 15% 15% 15% Discounted FCF/share 0.037 0.040 0.067 0.070 0.072 0.071 0.067 0.063 0.058 0.052
2024 FCF/share @ 2% growth 0.22 Discount rate 15% Growth rate 2% Terminal value 1.66 PV of Terminal Value 0.41
Total DCF (USD) 1.01 Total DCF (HKD) 7.81 SOURCES: CIMB
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NagaCorp Ltd March 21, 2013
5.3 Peers valuations
Figure 75: Sector Comparisons
Target Market 3-year Bloomberg Price Core P/E (x) P/BV (x) ROE (%) Yield (%) Price Cap EPS EV/EBITDA (x) (local (local (US$ CAGR Company Ticker Recom. CY2013 CY2014 CY2013 CY2014 CY2013 CY2014 CY2013 CY2014 CY2013 CY2014 curr) curr) m) (%) Galaxy Entertainment 27 HK OUTPERFORM 32.95 36.81 17,854 15.7 13.8 15% 4.5 3.4 11.5 9.2 33% 28% 0.0% 0.0% MGM China Holdings 2282 HK OUTPERFORM 16.74 19.81 8,194 12.5 11.1 14% 7.4 5.4 9.4 8.1 70% 56% 4.0% 4.5% Sands China 1928 HK OUTPERFORM 38.25 41.95 39,693 21.7 16.2 33% 6.7 5.8 17.0 13.2 32% 38% 3.9% 4.0% SJM Holdings 880 HK OUTPERFORM 19.12 23.62 13,665 13.4 12.1 10% 4.6 4.1 9.7 8.6 37% 36% 5.7% 6.3% Wynn Macau 1128 HK NEUTRAL 20.50 22.42 13,699 14.3 13.9 0% 9.6 7.1 11.7 11.2 80% 59% 3.5% 3.6% Melco Crown MPEL US NOT RATED 20.24 n.a. 11,186 20.7 16.6 29% 2.8 2.4 12.3 11.1 14% 14% 0.0% 0.0% Macau average 16.39 13.94 17% 5.9 4.7 11.9 10.2 44% 39% 2.8% 3.1%
Genting Hong Kong GENHK SP OUTPERFORM 0.45 0.55 3,498 16.7 10.9 n.a. 1.4 1.2 13.5 9.9 9% 12% 0.0% 0.0% Genting Singapore GENS SP UNDERPERFORM 1.46 1.20 14,203 22.3 18.3 19% 1.8 1.6 10.5 8.6 8% 9% 0.7% 0.7% Singapore average 19.5 14.6 n.a. 1.6 1.4 12.0 9.2 9% 11% 0.3% 0.3%
Berjaya Sports Toto BST MK OUTPERFORM 4.18 5.80 1,808 13.4 13.0 2% 7.8 6.9 8.7 8.4 63% 56% 6.0% 6.1% Genting Bhd GENT MK OUTPERFORM 9.61 10.90 11,373 13.7 11.9 9% 1.4 1.3 5.9 5.2 11% 11% 0.9% 0.9% Genting Malaysia GENM MK NEUTRAL 3.47 3.98 6,305 12.3 11.3 6% 1.4 1.3 6.3 5.5 12% 12% 2.7% 2.8% Malaysia average 13.1 12.1 6% 3.5 3.2 7.0 6.4 29% 26% 3.2% 3.3%
NagaCorp 3918 HK OUTPERFORM 6.13 7.81 1,802 12.4 10.5 19% 3.07 2.77 9.3 7.5 28% 28% 5.4% 6.7%
SOURCES: CIMB
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NagaCorp Ltd March 21, 2013
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NagaCorp Ltd March 21, 2013
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NagaCorp Ltd March 21, 2013
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Spitzer Chart for stock being researched ( 2 year data )
Price Close
7.9 6.9 5.9 4.9 3.9 2.9 1.9 0.9 Mar-11 Jul-11 Nov-11 Mar-12 Jul-12 Nov-12
Distribution of stock ratings and investment banking clients for quarter ended on 28 February 2013 958 companies under coverage Rating Distribution (%) Investment Banking clients (%) Outperform/Buy/Trading Buy 51.7% 8.6% Neutral 35.0% 4.3% Underperform/Sell/Trading Sell 13.3% 7.1%
Recommendation Framework #1 *
Stock Sector OUTPERFORM: The stock's total return is expected to exceed a relevant OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is benchmark's total return by 5% or more over the next 12 months. expected to outperform the relevant primary market index over the next 12 months. NEUTRAL: The stock's total return is expected to be within +/-5% of a relevant NEUTRAL: The industry, as defined by the analyst's coverage universe, is expected benchmark's total return. to perform in line with the relevant primary market index over the next 12 months. UNDERPERFORM: The stock's total return is expected to be below a relevant UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is benchmark's total return by 5% or more over the next 12 months. expected to underperform the relevant primary market index over the next 12 months. TRADING BUY: The stock's total return is expected to exceed a relevant TRADING BUY: The industry, as defined by the analyst's coverage universe, is benchmark's total return by 5% or more over the next 3 months. expected to outperform the relevant primary market index over the next 3 months. TRADING SELL: The stock's total return is expected to be below a relevant TRADING SELL: The industry, as defined by the analyst's coverage universe, is benchmark's total return by 5% or more over the next 3 months. expected to underperform the relevant primary market index over the next 3 months.
* This framework only applies to stocks listed on the Singapore Stock Exchange, Bursa Malaysia, Stock Exchange of Thailand, Jakarta Stock Exchange, Australian Securities Exchange, Korea Exchange, Taiwan Stock Exchange and National Stock Exchange of India/Bombay Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons.
CIMB Research Pte Ltd (Co. Reg. No. 198701620M)
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NagaCorp Ltd March 21, 2013
Recommendation Framework #2 ** Stock Sector OUTPERFORM: Expected positive total returns of 10% or more over the next 12 OVERWEIGHT: The industry, as defined by the analyst's coverage universe, has a months. high number of stocks that are expected to have total returns of +10% or better over the next 12 months. NEUTRAL: Expected total returns of between -10% and +10% over the next 12 NEUTRAL: The industry, as defined by the analyst's coverage universe, has either (i) months. an equal number of stocks that are expected to have total returns of +10% (or better) or -10% (or worse), or (ii) stocks that are predominantly expected to have total returns that will range from +10% to -10%; both over the next 12 months. UNDERPERFORM: Expected negative total returns of 10% or more over the next 12 UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, has a months. high number of stocks that are expected to have total returns of -10% or worse over the next 12 months. TRADING BUY: Expected positive total returns of 10% or more over the next 3 TRADING BUY: The industry, as defined by the analyst's coverage universe, has a months. high number of stocks that are expected to have total returns of +10% or better over the next 3 months. TRADING SELL: Expected negative total returns of 10% or more over the next 3 TRADING SELL: The industry, as defined by the analyst's coverage universe, has a months. high number of stocks that are expected to have total returns of -10% or worse over the next 3 months.
** This framework only applies to stocks listed on the Hong Kong Stock Exchange and China listings on the Singapore Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons.
Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (IOD) in 2011. AAV – not available, ADVANC - Excellent, AMATA - Very Good, AOT - Excellent, AP - Very Good, BANPU - Excellent , BAY - Excellent , BBL - Excellent, BCH - Good, BEC - Very Good, BECL - Very Good, BGH - not available, BH - Very Good, BIGC - Very Good, BTS - Very Good, CCET - Good, CK - Very Good, CPALL - Very Good, CPF - Very Good, CPN - Excellent, DELTA - Very Good, DTAC - Very Good, GLOBAL - not available, GLOW - Very Good, GRAMMY – Excellent, HANA - Very Good, HEMRAJ - Excellent, HMPRO - Very Good, INTUCH – Very Good, ITD - Good, IVL - Very Good, JAS – Very Good, KAMART – not available, KBANK - Excellent, KK – Excellent, KTB - Excellent, LH - Very Good, LPN - Excellent, MAJOR - Very Good, MCOT - Excellent, MINT - Very Good, PS - Excellent, PSL - Excellent, PTT - Excellent, PTTGC - not available, PTTEP - Excellent, QH - Excellent, RATCH - Excellent, ROBINS - Excellent, RS – Excellent, SC – Excellent, SCB - Excellent, SCC - Excellent, SCCC - Very Good, SIRI - Very Good, SPALI - Very Good, STA - Very Good, STEC - Very Good, TCAP - Very Good, THAI - Very Good, THCOM – Very Good, TICON – Good, TISCO - Excellent, TMB - Excellent, TOP - Excellent, TRUE - Very Good, TUF - Very Good, WORK – Good.
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