A strong recovery trend since reopening in July on the back of a large local expat community in Phnom Penh and increased business travel to the Cambodian capital has seen investment bank Union Gaming revise upwards its 2020 estimates for Hong Kong-listed NagaCorp.
After NagaCorp reported late Sunday that GGR levels had already returned to 91% of pre-COVID levels through September, Union Gaming analyst John Decree said in a Tuesday note that he is now modelling 2020 revenue of US$842 million, up from US$770 million, and Adjusted EBITDA of US$245 million from a previous US$167 million.
Estimates for 2021 are slightly down following the passing this week of Cambodia’s new gaming law, which includes a 4% tax on VIP GGR and 7% on mass: Adjusted EBITDA in 2021 is now estimated at US$538 million compared with an earlier AU$564 million while 2022 estimates are down from US$785 million to US$746 million.
“The new GGR taxes are mostly offset by cost savings initiatives stemming from the COVID shut down,” said DeCree, who maintains his Buy rating on NagaCorp shares.
“We continue to believe shares of Naga are oversold and poised for a sharp recovery once investor confidence returns to the Asian gaming space, likely when cross-border visitation throughout the region picks up and/or when Macau begins to see some meaningful gaming volumes.”
DeCree said NagaCorp’s strong recovery is based primarily on local expats, while an increase in business travel from the region was likely also assisting.
“The recovery has been driven by the mass market, namely expatriates living in Phonm Penh,” he said. “This demographic primarily consists of Chinese expats living and working in Cambodia.
“The local expat community is a unique customer base for Naga that has plenty of capital in country and little to no reliance on junkets for credit for gaming liquidity. With limited entertainment options in the current environment, Naga has been able to grab greater wallet share from this customer segment.
“Further, business travel to Phnom Penh has picked up in recent weeks, now with 32 weekly direct flights to Cambodia, including 21 from Greater China.”
DeCree has set a price target of HK$13.50 for NagaCorp shares, which currently sit at HK$9.10 at Tuesday close.
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