Stanley Research picks NagaCorp over declining Macau stocks

Sunday 8th of February 2015

Cambodian casino operator NagaCorp will continue to outperform Macau gaming stocks but profit growth fueled by VIPs could be limited and volatile, according to analysts at Morgan Stanley Research.

The Hong Kong-listed company, which operates Phnom Penh’s NagaWorld casino, reported gross gaming revenue increased 17 percent to $381.4 million last year, with VIP rollings rising by 35 percent to $6.2 billion.

“We expect NagaCorp to continue outperformance vs. Macau stocks, driven by stronger earnings outlook, less regulatory risk, and more attractive valuation. But, VIP-led profit growth could be limited and volatile. Mass needs more support,” analysts Alex Poon and Praveen Choudhary , Asian gaming team leader, said.

NagaCorp has outperformed Macau gaming stocks by 23 percent since the end of June last year, which the analysts expect to continue this year as Macau becomes increasingly restrictive to gamers and the stronger partnerships between NagaCorp and junkets.

“Stronger earnings growth outlook in 2015 – net profit up 11%, vs. 3-23% YoY declines for Macau. We forecast VIP roll to rise 54% with full-year contribution of Macau junkets, including Suncity.”

However, the reliance on VIPs and low mass market volume could prove risky this year along with start-up losses from NagaCity Walk, a walkway with retail facilities, and the opening of casinos in Vietnam to locals.