“Sanctions led to suspension of the Russia project” for Hong Kong-listed casino group NagaCorp Ltd, said a Tuesday note from Terry Ng, an analyst at Daiwa Capital Markets Hong Kong Ltd, citing commentary from management, and referring to financial action by a raft of countries against the Russian Federation.
The note did not specifically mention Russia’s military invasion of Ukraine. But Daiwa added NagaCorp might now try to dispose of its Russia venture.
“Management commented that the new round of sanctions affects Naga[Corp]’s ability to continue funding the project,” a casino complex (pictured) near the Russian Pacific port of Vladivostok, Mr Ng noted.
From Daiwa’s perspective, “unless” sanctions against Russia were “rolled back,” they could affect NagaCorp’s “ability to operate efficiently even if the project were to be completed in future.”
“We believe Naga[Corp] will most likely consider selling the project,” added the analyst.
On March 3, NagaCorp announced it had suspended construction on the site at the Primorye Integrated Entertainment Zone, “indefinitely until the circumstance is clearer”. At that time, it had not mentioned either the Ukraine crisis, or international sanctions on Russia.
NagaCorp’s core business is a casino monopoly in the Cambodian capital Phnom Penh, where it runs the NagaWorld complex.
Daiwa said it had cut by 61.5 percent its 2022 forecast for NagaCorp earnings before interest, taxation, depreciation and amortisation (EBITDA) mostly in order to reflect a “slower-than-expected recovery in regional travel,” following Covid-19 related restrictions in many tourism source markets.
Daiwa said the suspension of the Russia scheme was also a factor in its reassessment.
In its full-year results issued on February 7, NagaCorp did not mention an opening date for its Primorye resort, but said it expected to “carry on with the development of facade, mechanical, electrical and plumbing, and architectural works this year”.
The brokerage’s assessment of NagaCorp’s Russia venture followed the Daiwa Investment Conference-Tokyo 2022 held online on Monday, and which featured participation from NagaCorp’s management.
Daiwa now expects NagaCorp’s 2022 EBITDA to be US$274 million, rising to US$473 million in 2023, and US$605 million in 2024. In the pre-pandemic trading year of 2019, it generated US$672 million in EBITDA.
In 2021, the NagaWorld complex’s casino facilities were shut from early March to September 15, as a result of Covid-19 countermeasures in Cambodia. The company reported a US$147.0-million loss for full-year 2021.
Daiwa noted in its Tuesday memo: “We believe there is little risk of pandemic-induced closures at NagaWorld going forward. We agree with management’s view that ‘travel bubbles’ with Southeast Asian neighbours will be the key recovery driver in 2022 as China sticks with its ‘zero Covid-19’ policy”.
Business-visitor volume from China to Cambodia would “likely pick up only in 2023”. Meanwhile, Cambodia’s “domestic expat base” was expected to be a “reliable source” for NagaWorld’s premium mass gross gaming revenue (GGR), the Daiwa analyst wrote.
NagaWorld GGR might recover to 67.5 percent of its 2019-level by 2023, led by the premium-mass and mass-market segments, said Daiwa.
But Mr Ng cautioned: “We believe that the strict NAT [nucleic acid test] requirement – within 72 hours before arrival – and unsynchronised border policies between Cambodia and other countries could lead to a slower-than-expected recovery in regional travel.”
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