Feb 03, 2016 Newsdesk Latest News, Rest of Asia, Top of the deck  
Cambodia casino operator NagaCorp Ltd is set to benefit from additional flights between Cambodia’s capital Phnom Penh and Chinese cities in 2016, say investment analysts. The additional flights are by Bassaka Air, a passenger airline based in Cambodia that leases the planes from NagaCorp.
Bassaka Air started international services between Macau and Phnom Penh in March last year. The airline initiated flights to the Chinese cities of Changsha and Xi’an in December and is planning to start services to three other cities in China this year, according to notes from analysts following a conference call on Tuesday with NagaCorp management.
Hong Kong-listed NagaCorp, operator of casino resort NagaWorld (pictured), on Monday posted a net profit of US$172.6 million for 2015, up by 26.8 percent from the previous year.
“NagaCorp initiated flights from two Chinese cities (Changsha and Xi’an) in December and is looking to add another three cities by midyear. The existing two cities are driving an incremental 350-400 footfalls per day on the public floors, representing about 8 percent growth to current levels,” said a note on Tuesday from Union Gaming Securities Asia Ltd.
“The mix can be honed over the coming months to continually fill rooms with higher value customers. We are particularly excited about this driver of mass-market volume over the near and medium terms,” said analyst Grant Govertsen.
Analysts at CIMB Securities Ltd also expect the additional flights to Chinese cities “to help to increase Chinese mass visitation”.
“On our visit to the main floor last week, we did not see a table with a minimum bet lower than US$40, which is higher than the typical Macau minimum bet of US$26,” said analysts Michael Ting and Jensen Poon in a note on Tuesday.
NagaCorp’s full year gross gaming revenue increased 26 percent year-on-year to US$480.6 million in 2015. That included revenue of US$257.7 million from mass-market play, up by 33.4 percent year-on-year, and US$222.9 from the VIP segment, an increase of 18.5 percent, the firm said in a filing on Monday.
The firm’s stock however closed down 11.25 percent at HKD4.26 (US$0.55) on Tuesday, as the results showed that sales and net profit slowed in the second half of 2015.
Mass growth
Analysts expect the mass-market segment and slot operations to be the largest drivers of growth for NagaCorp in 2016.
“As we look out to the balance of 2016 and into 2017, we continue to see double digit earnings growth for the company … most of which will be delivered by the high-margin, high-visibility mass market and slots segments,” said Union Gaming’s Mr Govertsen.
He added: “At the same time, and contrary to the peer group, we look for NagaCorp to continue to grow earnings associated with VIP gaming, although (importantly) the company’s exposure to this volatile segment remains low at [below] 20 percent of gross profit.”
CIMB Securities said it increased its gross margin forecast for NagaCorp for “fiscal years 2016 and 2017 to 65 percent for both years”. The brokerage said it expects the casino operator to “cut back on its incentive programme to junkets with a 70/30 junket/operator incentive split versus some cases of 80/20 in fiscal year 2015”.
“While NagaCorp is cutting back on its junket incentive programme, our view is that NagaCorp may still, in certain special circumstances give extra incentive to junkets provided that the junkets bring in strong traffic flow, especially higher-valued Macau junkets with Chinese customers,” said Mr Ting and Mr Poon.
They added: “VIP tele-betting, started in January, could become a strong revenue driver over time.”
NagaCity Walk, a shopping complex next to the casino resort, is on schedule to open in the third quarter of 2016, NagaCorp confirmed in its latest filing.
“Given the lack of major shopping outlets in Phnom Penh with the exception of the Aeon shopping mall, NagaCity walk should be able to attract and keep tourists on the property, which will encourage increased gaming activities,” said the CIMB Securities team.
NagaCorp has offered to buy from its chief executive and controlling shareholder the entire share capital in the firm developing NagaCity Walk. The target date for completion of the sale and purchase agreement has been put back 18 months, the casino operator said in December.
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