20081113 Yuanta NagaCorp (3918 HK), HK$1.17 BUY
Relatively speaking, Nagaworld has been largely spared the gaming world's problems. The largest proportion of visitors to the casino remain the domestic holders of foreign passports, comprising 45% of revenues, and no less than half of profits. The lack of a local stock market and the developing status has thus far limited the impact from the current global troubles, according to management. And only ~25% of the total STG visitors are from the PRC.
The facilities are completed with no further plans for expansion at present. The balance sheet remains clean with no debt, and effectively no taxes on casino profits through 2035 due to the monopoly license for gaming within 200km of Phnom Penh. Management maintains its vigorous belief in holding the payout ratio for the casino at greater than 50%. At the current share price, the implied yield for our estimated 60% payout would be 11.3%. The company's value proposition has had no problem attracting top funds in the area, and high yield attraction has caused liquidity to become an issue.
Maintain BUY; reduce price target from HK$3.40 based on a DCF valuation method to a more conservative, 1.5x PBV of FY09F (HK$1.79) to reflect the difficult equity environment.