Firich a synergistic partner. Firich (8076 TT, Not Rated), a company listed in Taiwan, has an nounced that it will spend USD18.9m to acquire a stake in Oriental Regent (who owns 50% stake in FGCE; a company that holds the gaming license in the integrated entertainment zone of the Primorye Region). Oriental Regent will utilize funds from Firich worth USD13.4m to acquire the remaining 50% of FGCE while USD5.6m will be capitalized as equity after completion. After the completion of reorganisation, Oriental Regent controlled by Elegant City, will hold 30%, while Firich will hold 19%. The deal is estimated to be close to twice the initial investment quantum of FGCE. Firich will bring to the table its expertise in video lottery terminals and point of sales terminals. It will also focus on attr acting customers from Taiwan and Korea. We see the new partner as a synergistic addition to the venture.
Reiterate BUY and Street-high TP of HKD20.60. We keep our BUY
rating on MID as we roll forward our earnings for Melco Crown to FY14, with a new Street-high TP of HKD20.60 from HKD18.60. In addition to its Russian venture, MID’s international portfolio of casino investments will soon expand further with Belle Grande casino in the Philippines, on track to open in mid-2014 (in partnership with Belle), and Macau Studio
City in mid-2015. Our TP implies 18% upside.
Russia – a new frontier. Casino operators have been eager to explore new markets following the success of the global casino business. The most recent excitement came from the acquisition in the casino venture by Melco Int’l Development (MID) and Summit Ascent Holdings Ltd. (102 HK, Not Rated), of a 5% and 46% stake respectively, in the venture to pioneer the development of two casino hotels in Vladivostok, in the Primorye region bordering China. The Russian government is also encouraging investments here with attractive gaming tax rates. Riding on Melco’s management. The first phase of the casino resort is anticipated to cost USD130m, and will comprise 25 VIP and 40 mass tables, 800 slot machines and 119 hotel rooms. As a first mover, we think the casino should achieve breakeven within two years. The casino will pay Summit Ascent a fee of 3% of its gross gaming revenue, and pay MID a consultancy fee of 0.3% of gross gaming revenue.