Donaco falls on share placement plan, but analysts remain bullish on future

Published in: Latest Intelligence Shares in Australia-listed Donaco International (DNA.AX) retreated last week after the company announced plans to raise funds through a share placing, though analysts remain bullish about the casino company’s prospects.
The company, which is operated by two nephews of Genting Bhd Chairman KT Lim, said it has received binding commitments from investors to raise A$75 million ($69.2 million). The placement will take place in two tranches and involves a total of 56.39 million shares priced at $1.33 apiece.
The first tranche will be composed of 26.75 million shares, or 15 percent of the enlarged capital, while the sale of the remaining 29.64 million shares will be subject to shareholder approval.
Donaco stock gave up 4.6 percent to A$1.45 over the week, even after recouping some ground with a 3.6 percent increase on Wednesday. The volume of shares changing hands was 38 percent more than the one-month daily average.
Still Donaco shares are trading at high levels and all three brokerages covering the stock carry a buy rating on the company.
Donaco, which has a flagship casino venture in Lao Cai, Vietnam, has a market capitalization of US$539 million, and hit a 52-week high of A$1.61 on March 19.
The company’s stock price has risen 25.5 percent in the past three months, outperforming Australia’s other casino stocks.
The company said the fund-raising deal was substantially oversubscribed. However, it said the funds won’t be used for the five-star Lao Cai development. It says construction of that resort is on time and on budget, with a tentative schedule for a soft opening in May.
Instead, the new funds will be used for other projects in the pipeline, which the company said are close to fruition. It gave no further details.
CLSA said it expects Donaco’s EBITDA to surge to A$80 million ($89.2 million) in 2016, up from A$10 million last year. The firm has a twelve-month target price of A$1.69 for the casino company, representing upside of some 40 percent.
The brokerage said returns per gambling table, or table yields, are likely to quickly recover following the addition of new supply at its Lao Cai property because the casino is likely to attract materially higher gaming and non-gaming spending from mainland tourists.
Meanwhile, among other Australian-listed issues, shares in Aristocrat Leisure (ALL AU) surged 6.9 percent to finish at a fresh 52-week high of A$5.55 after U.S. investment bank JPMorgan raised its rating from neutral to overweight.
After a trip to the U.S., analysts at JPMorgan set a new forecast for a compound annual growth rate of 17 percent for earnings per share between 2013 and 2016.
“This will be driven by sales in E-series games, which we estimate are doing 2 times floor average at most venues, as well as some incremental improvement in other content,” JPMorgan said.
In Hong Kong, casino and junket companies retreated after analysts said the sector is now overpriced.
Vincent Chan, head of China research at Credit Suisse, said the valuations of Macau gaming stocks have reached nosebleed levels after surging more than 400 percent since 2009.
Wynn Macau (1128.HK) dropped 9.1 percent to HK$32.1, the biggest decline among the six casino majors in Macau, while Melco Crown (6883.HK) dropped 8.5 percent before it posted its full-year results, which came in better than market expectations.
The firm’s 2013 net income was $637.5 million, beating analysts’ forecasts for US$620.7million.
The firm, which was rated as best Macau casino for 2013 by Deutsche Bank, said it will open a new hotel in the City of Dreams in Macau in 2017.
Galaxy Entertainment (27.HK), SJM (880.HK), and Sands China (1928.HK) gave up about 5 percent, after coming under attack from short sellers who are betting heavily on disappointing gaming revenue in March amid the ongoing liquidity crunch in China and a lack of positive catalysts in the market.
Analysts at Citi said Macau’s widely watched gross gaming revenue for the first 23 days in March reached MOP24.7 billion ($3.1billion), translating into MOP1,065 million per day, which is lower than the 2014 average of MOP1,127 million per day.
 

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