Naga2 accretive to 2018 NagaCorp EBITDA: analyst
Naga2, a hotel and gaming extension of NagaWorld casino resort (pictured), is likely to produce US$113 million in incremental earnings before interest, taxation, depreciation and amortisation (EBITDA) during 2018, its expected first full year of operation, said a Monday note from brokerage Union Gaming Securities Asia Ltd.
NagaWorld is the only casino licensed for the Cambodian capital Phnom Penh. Hong Kong-listed NagaCorp Ltd, the operator of NagaWorld, said in its 2016 annual report – released in March this year – that it expected Naga2 to open during 2017.
Naga2 is also known as the Tan Sri Chen Lip Keong Complex or “TSCLK Complex” after the firm’s founder and chief executive, who funded the development in exchange for the right to NagaCorp-issued bonds to the value of US$275 million, convertible to company shares.
In earlier filings NagaCorp had said that Naga2 – due to be connected to NagaWorld by a shopping complex called NagaCity Walk – would include more than 1,000 new hotel rooms and luxury suites, as well as up to 300 gaming tables and 500 electronic gaming machines. The group’s latest annual report made no mention of the facilities currently planned for Naga2.
Nonetheless the annual report did state: “The expected opening of the TSCLK Complex (also known as Naga2) in 2017 is expected to enhance NagaWorld’s appeal to both the mass market and VIP market across the region and further cement NagaWorld as the entertainment centre in the Mekong region.”
Monday’s note from Union Gaming analyst Grant Govertsen stated: “Our model currently contemplates an incremental US$113 million in EBITDA at the corporate level during Naga2′s first full year of operations (2018), which includes some cannibalisation of the existing NagaWorld asset.”
NagaCorp CEO Mr Chen also funded NagaCity Walk in return for convertible bonds with an agreed value of US$94 million, taking the total in value of convertible bonds issued by the company to its chairman for the two schemes to US$369 million, noted Union Gaming.
NagaCity Walk was completed and acquired by the company on May 17, 2016, according to NagaCorp’s latest annual report.
Union Gaming estimated that NagaCorp would eventually have a “56.99-percent higher share count as a result of the conversion of the Naga2 bonds as the share count moves from 2,459,988,875 today to 3,861,832,427 post conversion of the TSCLK Complex bonds”.
On Friday NagaCorp issued a filing on the proposed conversion of the TSCLK Complex convertible bonds. Independent shareholder approval would be sought for the move at a July 21 extraordinary general meeting, stated the filing.
According to Union Gaming, given that the conversion of the TSCLK Complex bond would take Mr Chen’s ownership of NagaCorp above 50 percent – from the current 39 percent – this would, under Hong Kong’s takeovers and mergers rules, result in the CEO being required to make a mandatory general offer for all the issued company shares not owned or agreed to be acquired by him.
The brokerage added: “While we are waiting to adjust the share count in our model based on the extraordinary general meeting results… plugging the higher share count into our model suggests NagaCorp is now trading at 5.4 times 2018 enterprise value/EBITDA, which we view as attractive since we’ve historically valued the company at 7.5 times to 8.5 times.”
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