Brokerage Morgan Stanley Asia Ltd says it expects casino operator NagaCorp Ltd to be “able to refinance” its US$470-million bond issue maturing in July 2024.
“As of the end of the first half of 2023, it [NagaCorp] had US$242 million cash, plus US$86 million half-on-half,” wrote analysts Gareth Leung and Praveen Choudhary in a recent note.
NagaCorp has a long-life monopoly casino licence for the Cambodian capital, Phnom Penh, where it operates the NagaWorld resort complex (pictured).
NagaCorp reported on Wednesday a net profit of US$83.0 million for the first half of 2023, up 57.4 percent from a year ago. The group’s first-half earnings before interest, taxation, depreciation and amortisation (EBITDA) were US$143.2 million, 10.1-percent higher than in the prior-year period.
Group-wide revenue for the six months to June 30 rose by 9.8 percent year-on-year, to just above US$263.0 million.
According to Morgan Stanley’s team, the casino firm’s “planned capital expenditure is US$60 million for second-half 2023, and US$20 million for first-half 2024”.
“At second-quarter 2023’s EBITDA run-rate, NagaCorp generates circa US$50 million free cash flow to equity per quarter,” they added. “We think it will be able to roll forward US$50 million to US$100 million of the bonds.”
NagaCorp’s net debt stood at about US$208.6 million as of June-end. “The company is confident that it can discharge all of its financial obligations when the outstanding senior notes mature in July 2024,” it stated in its first-half earnings result.
In June, Moody’s Investors Service downgraded to ‘B3’ from ‘B2’ the corporate family rating of NagaCorp. “The rating downgrade and negative outlook reflect NagaCorp’s lack of refinancing progress for its US$472 million U.S. dollar bond coming due in July 2024,” said at the time the ratings agency.
The Morgan Stanley analysts said that as the “refinancing overhang gets removed,” NagaCorp’s stock would “trade on fundamentals”.
“On long-term average enterprise value (EV) to EBITDA of 8 times and second-quarter 2023 run-rate, the company has US$2.7 billion EV and US$2.48 billion market cap, putting a floor under current market cap of US$2.65 billion,” stated the analysts.
NagaCorp has lowered its capital expenditure commitments as construction of Naga 3, an addition to the NagaWorld gaming complex, has been pushed back by four years. The firm said it is “considering options” regarding completion of the project, including the possibility of resizing the expansion project.
In a press briefing on Thursday, NagaCorp’s management said that Naga 3 is likely to be opened in phases, with the podium forecast to be the first part to come online.
