Regional casino business in Asia Pacific has an “elevated profile risk” until such time as there is “greater clarity” on the global outbreak of a novel coronavirus, said a Tuesday note from brokerage Union Gaming Securities LLC.
The memo focused on the outlook in particular for Hong Kong-listed NagaCorp Ltd, which has a monopoly casino licence for the Cambodian capital Phnom Penh, and on Monday reported its fourth-quarter and full-year 2019 results.
Referring to the 15-day shutdown of Macau casinos in the wake of the coronavirus alert – a pathogen now officially known as Covid-19 – Union Gaming’s analysts Grant Govertsen and John DeCree stated: “While the closure of Macau is a net (and temporary) positive for Naga[Corp], until there is greater clarity on coronavirus, regional gaming will have an elevated risk profile.”
NagaCorp, which runs the NagaWorld complex, said in its Monday announcement that “the company is of the opinion” that the coronavirus problem “will be short-lived”.
The group had reported that day that NagaWorld recorded gross gaming revenue (GGR) of nearly US$1.72 billion in full-year 2019, up 19.9 percent compared with 2018. NagaCorp reported net profit of about US$521.3 million for full 2019, a 33.5-percent increase over 2018.
Union Gaming observed in its memo on the numbers – referring to Naga 1 and Naga 2, the latter an extension to the complex, and which opened in 2017: “Fundamentally, business trends at both Naga properties and across all gaming segments remained strong through the end of fourth-quarter 2019 and even through the early parts of first quarter 2020. Cambodia remains open for business and we suspect Naga, at least at the margin, has picked up some displaced customers from Macau.”
Macau’s casino shutdown is currently scheduled to run until February 19 inclusive. Some commentators think it could last longer.
Union Gaming said while it had previously “baked in” to its forecasts for NagaCorp the fact there was due to be a casino regulatory law in Cambodia, it was for now on going to discount that, due to the delay in passage of such a law.
“We have long baked-in the pending legislative bill that will adopt an international regulatory framework as well as a GGR tax,” wrote the brokerage’s analysts. “While the bill has been an imminent event for multiple years, we are removing it from our model until it comes to fruition.”
The Union Gaming team added: “In the meantime, we will account for the lack of regulatory bill in an assumed catch-up tax payment that the government extracted from the company in 2019 (of approximately US$20 million). This is very favourable relative to our prior estimate of nearly US$120 million in GGR taxes in 2020.”
Previous commentary from NagaCorp management has indicated a new casino law could see NagaCorp move from a flat tax – albeit one incrementally increased over time – on its overall income, to a system likely to include a percentage tax on GGR.
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