NagaCorp remains success, UG

Wednesday 29th of April 2015

Union Gaming remains fixed on its Buy rating on shares in Hong Kong-listed NagaCorp due to the company’s continuing success and growth prospects.

Analysts Grant Govertson and Felicity Chiang said following a recent visit to Cambodia they believe NagaCorp, which operates Phnom Penh’s Nagaworld casino, will report above-consensus results over the next few years and buck the trend in Macau.

“In our view, shares of Naga have been unfairly penalized (down 35% from the March 2014 peak) as they have been lumped in with other Asian gaming equities in the Macau downturn.”

The research house estimates EBITDA of $211 million in 2015 and $255 million in 2016, which are 4 percent and 9 percent, respectively, higher than consensus.

AGBrief previously reported that the company’s 2014 gross gaming revenue increased by 23 percent to $381 million while net profit rose 9 percent to $136, based on the company’s “ability to outperform Macau in top-line growth.”

Aside from NagaCorp’s big development projects in Phnom Penh - NagaCity Walk and Naga 2 - Union Gaming identified 27 growth drivers across NagaWorld’s three primary business segments: VIP, mass tables, and slots/ETGs. One of those drivers is a new system in which cash for chips will be exchanged at the table rather than only at the cage. By having bill validators at each table “this should result in the compound effect of not only increasing wagering volume, but should also result in a slightly higher hold rate.”

In terms of VIPs, Govertson and Chiang say VIP gross profit in 2015 will reach $92 million, up 34 percent on the year before, and in 2016, increase 21 percent to $112 million. In 1Q15, Naga reported VIP rolling chip volume increased by 79 percent YoY to nearly $1.7 billion.

“We wish to address VIP first, as it is not only the most exciting growth driver for Naga, but also because it runs counter to broader regional VIP trends.”

The eagerly-awaited Macau-Phnom Penh flight will be a boon to junkets and ramp up player levels.

“ n early May, Naga’s airline, Bassaka Air, will begin flying 2x weekly between Macau and Phnom Penh. We believe this will quickly increase to 3x weekly. It is this flight program that we believe the big Macau junkets have been waiting on in order to begin sending players to Naga.”