Citi has initiated coverage of Hong Kong-listed NagaCorp with a “non-consensus Sell rating”, pointing to an “unlikely return to pre-COVID [EBITDA] levels anytime soon” and lengthy delays to the opening of the Naga3 expansion project at its Cambodian integrated resort NagaWorld.
In an initial note, Citi analyst Ryan Cheung said more subdued profit forecasts were a direct result of Naga’s historical over-reliance on VIP GGR, which has been negatively impacted by the collapse of Macau junkets. Likewise, “while we do believe that Naga3 will be able to garner market share when opened, the postponement of its full opening until September 2029 means that Naga will likely be a market share donor in the coming years,” Cheung wrote.
NagaCorp’s EBITDA reached only 44% of comparable pre-COVID levels in 1Q23, considerably below the recovery trajectory of casino operators in other Asian jurisdictions. And although flight capacity between China and Cambodia is only at 25% of pre-COVID levels, Cheung supposes that, when mainland Chinese players do return as outbound flight capacity increases, “they will return to other quality casinos with improved offerings in the region first.”
As such, Citi forecasts that NagaWorld’s FY24 EBITDA will only recover to 58% of pre-COVID levels at US$392 million. It has also offered a “Sell” rating, adding that the decision by management to suspend dividend payments will hurt the stock’s appeal to investors.
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