Asian casino investor NagaCorp Ltd says it expects to invest between US$3.8 billion and US$4 billion in another extension to NagaWorld casino resort in Cambodia’s capital, Phnom Penh. Naga 3, to be developed in a combined land area of 16,837 square metres (181,232 sq. feet), will expand the company’s gaming and non-gaming offerings, said the promoter in a Wednesday filing.
Hong Kong-listed NagaCorp has an exclusive licence to operate casinos in Phnom Penh and its surroundings. It started operations with the NagaWorld property, now referred to as Naga 1, which opened in December 2006. That property now links to Naga 2, an expansion that opened in November 2017.
Naga 1 and Naga 2 combined are now described as the NagaWorld Complex (pictured), and are connected via an underground shopping mall known as NagaCity Walk.
In Wednesday’s filing to the Hong Kong Stock Exchange, NagaCorp said Naga 3 will be adding a total 4,720 hotel rooms to the NagaWorld Complex, divided by four hotel towers and one 55-storey condotel, as well as a 12-level multi-entertainment podium. Naga 3 will be located adjacent to and connected to the existing property via the NagaCity Walk shopping, it added.
In addition to NagaWorld managed hotels, NagaCorp said it expects to engage one or more well-known international hotel brands to manage some of the hotels in Naga 3.
Under NagaCorp’s exclusive casino licence, the company has no restrictions on the number of gaming tables, electronic gaming machines (EGMs) and gaming space. The firm said it “is in a position to add up to 800 gaming tables (mass and VIP) and 2,500 EGMs” within Naga 3. The new extension will also feature an indoor “digital theme park” and space for meetings and conventions.
“The Royal Government of Cambodia has already granted approvals in principle for the Naga 3 project … and given the necessary government permits for construction on favourable terms, including the high plot ratio for construction,” said the casino firm.
In the latest filing, NagaCorp said it had not yet determined the total development costs of the Naga 3 project. The company added that it was considering various options to fund the development cost of the new extension, including internally generated free cash flow, funding about 50 percent of the total development costs provided by the controlling shareholder of the company.
NagaCorp’s founder and chief executive Chen Lip Keong has been increasing his stake in the Cambodian casino operator and currently owns 66.10 percent of the company’s shares.
‘Ambitious’ extension
A Wednesday report from Morgan Stanley Asia Ltd said Naga 3 might be “a bit too ambitious” given its scale.
“NagaCorp has net cash of US$110 million as of year-end 2018, and it can generate excess cash of US$300 million annually (after paying US$300 million in dividends). Yet, the funding gap remains,” wrote analysts Praveen Choudhary and Jeremy An.
“The company plans either a debt offering (high interest expense) or to get funding from the chairman (meaning future equity dilution),” they said. “Phase 2 was a success in terms of ROIC [return on invested capital], but Phase 3 – with more than 4,000 keys and huge capex – may be a bit too ambitious.”
On Wednesday, NagaCorp also published its results for the first quarter of 2019. The company said its gross gaming revenue (GGR) for the first three months this year stood at US$321.2 million, up 32 percent from the prior-year quarter.
Such growth was supported by a 45-percent increase in rolling chip turnover in the group’s VIP business, to nearly US$8.19 billion in the three months to March 31.
What the firm termed mass market “business” group wide – which it defined as mass-table buy-ins of chips and bills-in for electronic gaming machines – rose 29.7 percent year-on-year group-wide in the first quarter, to about US$1.01 billion.
The company said in guidance notes with Wednesday’s selected highlights of first-quarter operations, that the launch of Naga 2 remained an important factor in the improved performance.
The improvement in the VIP segment was due to the introduction of several Macau junkets to Naga 2. NagaCorp confirmed in the latest filing that Suncity Group had moved its operation in Naga 2 “to a dedicated larger space that accommodates more VIP tables”. Tak Chun Group, another leading Macau investor in gambling junkets, has also set up a “fixed base operation” at NagaWorld, while Guangdong Group started taking VIP players to the property, said the Hong Kong-listed firm.
