What's new
NagaCorp announced its 1Q20 trading update: GGR was US$369mn,up 15% YoY, of which VIP GGR was US$270mn, and up 25% YoYdriven by patrons brought in by junkets from Macau; Mass GGR wasUS$68mn, down 1% YoY.
GGR recorded growth in 1Q20 despite pandemic mainly due to 1)relatively diverse mixture of customer base consisting of sizableSoutheast Asian patrons and local Chinese who stayed in PhnomPenh during the pandemic; 2) influx of business from otherjurisdictions (Malaysia, Philippines, Singapore and Vietnam etc.)which imposed temporary travel restrictions from China; and 3)continued growth of business visits to Cambodia.
Comments
As of 31 March 2020, Naga had a cash balance of US$473mn and isable to meet US$300mn senior note obligation due in May 2021,after which the company will be nil of debt.
With 103 COVID-19 cases reported (as of 29 March 2020) inCambodia, the government has announced that all casinos were tosuspend operations from 1st April 2020 onwards. Casinos will not berequired to pay gaming taxes during the suspension of operations.
New restrictions for visitors to Cambodia starting on March 30, 2020:1) Visa on arrival for foreign nationals will be cancelled for a montheffective midnight of March 30, 2020; 2) foreign nationals require aprior visa and a medical certificate proving the bearer to becoronavirus negative; and 3) foreign nationals require a proof ofmedical insurance with coverage of at least US$50,000.
Valuation and recommendation
We lower our 2020e/21e revenue forecasts by 30%/23% and lower2020e/21e EBITDA forecasts by 35%/24% on impact from COVID-19.We maintain OUTPERFORM rating but lower TP by 31.6% toHK$10.80, implying 11x 2H20e-1H21e EV/EBITDA. The stock is tradingat HK$8.18, or 9x 2020e EV/EBITDA, our TP offers 32% upside.
Risks
Worsening of COVID-19; uncertainty over Naga3; uncertainty overthe new gaming tax; slower-than-expected ramp up of Naga2.