Monday, October 09, 2006Prudence Ho
The Standard (HK)
Casino operator Nagacorp, which has launched a public share in Hong Kong could test an ordinary investor's ability to stomach a wager on company, which securities brokers say, come with a few caveats.
NagaCorp, whose offer closes Wednesday, has said it has the sole license to operate a casino in Cambodia's capital Phnom Penh.
Owned by Malaysian tycoon Chen Lip Keong, NagaCorp began casino operations in 1995 and owns an exclusive right to operate a casino within a 200-kilometer radius of Phnom Penh until 2035, according to the company.
The company plans to use about HK$540 million of the proceeds from the Hong Kong initial public offering to develop a gaming and entertainment complex, thus increasing gaming tables from 44 to 176.
To lure investors, the company differentiated itself from existing listed Macau players by offering an attractive valuation and a high dividend policy.
"We will pay not less than 50 percent of our distributable profit as dividend, representing about 3 to 3.9 percent dividend yield," says Lee Wing Fatt, chief financial officer of NagaCorp. Based on the offer price range of between HK$1.25 and HK$1.60 per share, this represents 9.6 times to 12.3 times of last year's earnings. And based on the enlarged share capital, the offer price represents about 12.9 times to 16.4 times earnings. Share will begin trading October 19.
Compared with the 14.7 times to 2006's earnings of Genting, Malaysia's only legalized casino, the valuation of NagaCorp is not high.
However, several potential risks, including regulatory hurdles, low transparency in the industry as well as competition in Asia Pacific, may not bode well for investors betting on the stock.
"For investors, I think the biggest concern is the regulatory issue," says Credit Suisse analyst Gabriel Chan.
Although NagaCorp claims to have the sole casino operating licensee in Phnom Penh, the status of the license may be influenced by any change among senior government officials.
Also, any policy shifts related to tourism could adversely impact NagaCorp's business, since the business is highly dependent on foreigners visitors. At present, only foreign passport holders are permitted to gamble at NagaCorp's casino. Most of its customers are from Malaysia, China and Singapore.
Moreover, Louis Wong Wai-kit, director of Philip Securities, cautions it is not easy to get information on Cambodia's gambling industry from the media or the government, so investors should not overlook the transparency issue.
He says Cambodia is not Macau, in that there are no statistics on market share, so it is not easy to track the company's performance.
Besides, there is no way of knowing how many illegal casinos are operating in Cambodia, which could adversely impact NagaCorp's revenue and profitability.
Another factor is the intense competition in the Asia Pacific gaming business, as governments open up their markets for gaming and resort investment. Macau has issued three casino licenses, while Singapore has opened the door to casino investment. Thailand is also considering legalizing casinos.
The risk of money laundering should also be considered, although NagaCorp has emphasized it has adequate internal controls.
Earlier this year, NagaCorp's listing application was rejected by the Hong Kong stock exchange for insufficient internal controls to prevent money laundering activity.
Tung Tai Securities associate director Kenny Tang Sing-hing, says all such risk factors should be taken into account by investors keen on buying in, although the company has gained approval of the listing committee.
NagaCorp, whose offer closes Wednesday, has said it has the sole license to operate a casino in Cambodia's capital Phnom Penh.
Owned by Malaysian tycoon Chen Lip Keong, NagaCorp began casino operations in 1995 and owns an exclusive right to operate a casino within a 200-kilometer radius of Phnom Penh until 2035, according to the company.
The company plans to use about HK$540 million of the proceeds from the Hong Kong initial public offering to develop a gaming and entertainment complex, thus increasing gaming tables from 44 to 176.
To lure investors, the company differentiated itself from existing listed Macau players by offering an attractive valuation and a high dividend policy.
"We will pay not less than 50 percent of our distributable profit as dividend, representing about 3 to 3.9 percent dividend yield," says Lee Wing Fatt, chief financial officer of NagaCorp. Based on the offer price range of between HK$1.25 and HK$1.60 per share, this represents 9.6 times to 12.3 times of last year's earnings. And based on the enlarged share capital, the offer price represents about 12.9 times to 16.4 times earnings. Share will begin trading October 19.
Compared with the 14.7 times to 2006's earnings of Genting, Malaysia's only legalized casino, the valuation of NagaCorp is not high.
However, several potential risks, including regulatory hurdles, low transparency in the industry as well as competition in Asia Pacific, may not bode well for investors betting on the stock.
"For investors, I think the biggest concern is the regulatory issue," says Credit Suisse analyst Gabriel Chan.
Although NagaCorp claims to have the sole casino operating licensee in Phnom Penh, the status of the license may be influenced by any change among senior government officials.
Also, any policy shifts related to tourism could adversely impact NagaCorp's business, since the business is highly dependent on foreigners visitors. At present, only foreign passport holders are permitted to gamble at NagaCorp's casino. Most of its customers are from Malaysia, China and Singapore.
Moreover, Louis Wong Wai-kit, director of Philip Securities, cautions it is not easy to get information on Cambodia's gambling industry from the media or the government, so investors should not overlook the transparency issue.
He says Cambodia is not Macau, in that there are no statistics on market share, so it is not easy to track the company's performance.
Besides, there is no way of knowing how many illegal casinos are operating in Cambodia, which could adversely impact NagaCorp's revenue and profitability.
Another factor is the intense competition in the Asia Pacific gaming business, as governments open up their markets for gaming and resort investment. Macau has issued three casino licenses, while Singapore has opened the door to casino investment. Thailand is also considering legalizing casinos.
The risk of money laundering should also be considered, although NagaCorp has emphasized it has adequate internal controls.
Earlier this year, NagaCorp's listing application was rejected by the Hong Kong stock exchange for insufficient internal controls to prevent money laundering activity.
Tung Tai Securities associate director Kenny Tang Sing-hing, says all such risk factors should be taken into account by investors keen on buying in, although the company has gained approval of the listing committee.
1 comment:
I love gambling in Las Vegas, Atlantic City, and Macau.
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