Philippines-based casino operator Bloomberry Resorts Corp is better off without its Jeju casino in South Korea, while Nasdaq-listed Macau VIP junket investor Iao Kun Group Holding Co Ltd is better off for adding the same Jeju property to its portfolio, say separate notes from investment analysts.
“Jeju Sun has been an earnings drag, evident in first quarter 2016, as it contributed PHP206 million [US$4.4 million] to Bloomberry’s total PHP1.15 billion net loss, even as 72 percent of Jeju Sun’s gross revenue was from non-gaming sources,” said a Tuesday note from Rommel Rodrigo, of brokerage Maybank ATR Kim Eng Securities Inc.
Iao Kun announced last week that it was buying the Jeju Sun Hotel and Casino – on South Korea’s holiday island of Jeju – from Bloomberry for a total consideration of KRW117.5 billion (US$102.5 million). The deal is expected to close within 45 days.
David Bain, of brokerage Sterne Agee CRT, said in a note this week that Iao Kun’s stock was “misunderstood/underappreciated” and was significantly helped by the Jeju Sun deal.
He wrote: “Iao Kun’s approximately US$100-million purchase of the Jeju Sun Hotel and Casino positions it as the only U.S.-listed company in a limited field of regional gaming casino operators in Asia.”
Mr Bain further stated: “The growth potential for Jeju is strong: travel for [Chinese] mainlanders to Jeju is visa free (versus Macau visa restrictions) with daily flights and cruises from major markets in northern China. Jeju’s potential is showcased by Genting [Singapore Plc’s] US$2.2-billion casino resort development plan [on Jeju] and we note that Iao Kun has acquired a casino licence in Jeju as well as the Jeju Sun – the land it sits on, [the] casino, 203 [hotel] rooms, all adjacent to the Jeju airport – for close to the same amount Genting paid for just the Jeju casino licence by itself.”
Iao Kun has said that the acquisition of Jeju Sun was the “optimal way” to diversify its business outside of Macau. The firm expects to finalise the funding arrangements for the deal “within the next few weeks,” it added.
Meanwhile Maybank talked up the benefits to Bloomberry of the disposal of Jeju Sun. “We view the transaction positively [for Bloomberry] as it stops the bleeding in the Korean operations,” stated the brokerage.
Following the news of the transaction, the brokerage said it was raising its net income estimates for Bloomberry in 2016, 2017 and 2018 by, respectively, 20 percent, 22 percent and 17 percent.
“We continue to expect Bloomberry to turn profitable this year despite focusing only on Philippine operations,” added Maybank.
Philippine Stock Exchange-listed Bloomberry posted a net loss of PHP1.16 billion in the first quarter of 2016, compared to a net loss of PHP533 million in the prior-year period.
Maybank noted: “For Bloomberry’s Philippine gross gaming revenue, we are maintaining our conservative stance and estimate of a slight decline this year. We see the anti-money laundering case continuing to influence the regulator Philippine Amusement Gaming Corp to enforce tighter measures, especially for foreign VIP players. Currently, casinos are not covered under the Anti-Money Laundering Act.”
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"In the coming year we plan to actively tap into the overseas markets by identifying new business locations, keep on expanding our empire and also enhance our VIP services and facilities"
Chief executive of Macau gambling junket investor Tak Chun Group