NagaCorp Ltd (3918.HK) is the largest hotel, gaming, and leisure operator in Cambodia. The company holds a 70-year casino license until 2065 and a monopoly in the capital Phnom Penh until 2035. The revenues contribute already to around 3 percent to Cambodia’s GDP.[mepr-active membership=”1734″ ifallowed=”show” unauth=”message” unauth_message=”Please login or purchase a membership to view full text.”] NagaCorp’s flagship, NagaWorld, is an integrated hotel-casino entertainment complex in the capital of Cambodia, which just doubled its capacity with a new adjacent gaming, hotel, and shopping complex.
The majority of customers are Chinese. Their numbers have increased by 44 percent during the first eight months of this year and are surpassing now visitors from Vietnam, which has been leading tourist group to Cambodia so far.
NagaCorp benefits from the prohibition of gaming in China and from Beijing’s anti-corruption campaign which has scared gamblers away from Macau. To attract more tourists from China, NagaCorp operates around 580 charter flights from several Chinese cities. 5m international visitors came to Cambodia in 2016, including 0.8m visitors from China. By 2020 the government targets to attract 7m international visitors, of which 2m should come from China.
NagaCorp’s future strategy is to build further casinos in neighboring countries around China and addressing visitors particularly from China’s northern and western provinces. A first gaming and resort project outside Cambodia at only 180 km from China will open doors in Vladivostok Russia in 2019. Further casinos are planned in Mongolia, Kazakhstan, and Nepal.
NagaCorp was founded in 1995 and is headquartered in Phnom Penh.. The shares are listed on the main board of Hong Kong’s stock exchange since 2006. NagaCorp’s shares can also be traded in Germany and the US. Major shareholder is the founder and CEO, Mr. Tan Sri Dr. Chen Lip, with an ownership of 65 percent. The balance is held by the public.
With a workforce of 6406 employees, NagaCorp reported revenues of 402m USD and profits before tax of 155m USD over the first half year 2017. This is an increase of 39 and 20 percent respectively compared to the same period a year ago. In 2016, revenues and profits increased 6 and 10 percent respectively. The operating margin of 36 percent is well above industry average. NagaCorp had cash reserves of 167m USD at the end of June 2017. The company shows a rock-solid balance sheet with good profitability and financial strength. The equity ratio is at 96 percent and the gearing, defined here as total liabilities to total equity, at 4 percent only.
NagaCorp’s shares broke out from a downside trend in June this year and gained more than 60 percent in value since. The execution of two convertible bonds by the CEO, which diluted the number of shares outstanding by almost 1.8 times, had only little effect on the share price. NagaCorp is priced at 13 times earnings. The shares trade slightly above book value and at nine times cash flow. The latest dividend yielded more than 6 percent. The majority of covering analysts rates the stock currently as an outperformer or buy.
NagaCorp shows solid financials and a moderate valuation. The opportunities look excellent but come with certain risks. China could enforce pressure on its neighboring countries to confine the outflow of gambling money. Nevertheless, we expect NagaCorp’s share price to increase at least 20 percent over the next six months.
AIS Rating: ★★★★☆
| 2012 | 2013 | 2014 | 2015 | 2016 | 2017 H1 only |
|
|---|---|---|---|---|---|---|
| EPS (USDcent) | 5.4 | 6.3 | 6 | 7.6 | 7 | 3.5 |
| Change | 23% | 16% | -5% | 27% | -7% | -34%* |
* Dilutive impact of convertible bonds execution
| P/E | P/E SECTOR |
P/B | P/CF | Equity Ratio* |
ROE | LIAB./ Equity** |
Div YLD |
|---|---|---|---|---|---|---|---|
| 13 | 19 | 1.2 | 9 | 96% | 18% | 4% | 6% |
* Equity / Total Assets, ** Total Liabilities / Equity
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