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Naga profits hit jackpot again

Traffic passes in front of Phnom Penh’s landmark NagaWorld hotel and casino complex.
Traffic passes in front of Phnom Penh’s landmark NagaWorld hotel and casino complex. Heng Chivoan

Naga profits hit jackpot again

NagaCorp’s winning streak shows no signs of letting up, with the Hong Kong-listed casino operator posting another impressive half-year result, reporting profits up more than 20 percent year-on-year during the first six months of 2017 on a surge in VIP rollings and visits to its main gaming floor.

Gross gaming revenue soared nearly 40 percent year-on-year to $386.8 million at its NagaWorld hotel and casino in Phnom Penh, while net profit increased 20.3 percent to $150.6 million, the company said in a filing late Monday of unaudited results for the first six months of 2017.

The company attributed the growth and business volumes to the continued confidence in Cambodia’s political climate and social order, which it said had created favourable economic conditions and was increasing visitation, especially from China. It added that “confidence in the operating environment leads to increasing economic activity, resulting in increasing numbers of investors and a growing expat population in Phnom Penh and driving footfall into NagaWorld.”

NagaCorp also linked the performance to a strengthened balance sheet and rising international status. The company’s assets were valued at $5.4 billion in March 2017 by Colliers International, while it remains debt-free.

“As a consequence of the strengthening balance sheet, players are expressing more confidence, checking in more money, placing higher bets and generating a significant increase in business volume, especially in VIP rollings, which increased by 71 percent,” the company said in the filing.

The increase in VIP rollings, which raised the total to $7.8 billion during the period, generated $210.5 million in VIP market revenue, an 89 percent year-on-year increase.

NagaCorp also reported steady growth in the mass market segment, with revenue from main floor tables increasing 20.2 percent year-on-year to $74.5 million. Public floor table buy-ins and electronic gaming machine bills-in increased by 23 percent and 15 percent, respectively, during the period.

The company attributed higher traffic at NagaWorld’s main gaming floor to the continued growth of Cambodia’s tourism market, particularly visits from China, which recorded 36 percent growth during the first five months of the year.

Nongaming revenue, which covers hotel, food and beverage, and entertainment revenue, increased 29.8 percent year-on-year to $14.8 million during the period. The company said this growth came “primarily from higher occupancy and average room rates as well as better performance across all the food and beverage outlets”.

The company’s revenues are expected to grow significantly with the completion of an extension to NagaWorld, known alternately as the TSCLK Complex or Naga2. The massive $369 million development, slated to open in the fourth quarter, will double the company’s hotel space and gaming capacity.

Naga2 is expected to generate $113 million in incremental EBITDA during its first full year of operation, gaming-focused brokerage Union Gaming Securities Asia said last month.

Grant Govertsen, managing director of Union Gaming, said yesterday that the projections anticipate very little cannibalisation of NagaWorld’s existing facilities.

“The reality is that the existing property is running at or near capacity so it is likely that the addition of new rooms and gaming positions at Naga2 will achieve high levels of utilisation in short order,” he said.

NagaCorp reported $4 million in tax expenses during the first six months of 2017, compared to $3.7 million during the same period a year earlier. It attributed the increase to a nominal rise in its monthly gaming obligation payments to Cambodia’s Ministry of Economy and Finance (MEF), which increased to $462,362 per month during the period from $410,987 a year earlier, while its monthly non-gaming obligation remained unchanged at $214,338.

In 2016, NagaCorp made an additional tax payment of $16.6 million after a Cambodian government audit identified “discrepancies” in the company’s 2014 tax filings. The settlement came after the government deemed a clause that had exempted the company’s flagship 700-room hotel and casino – which opened in 2004 – from taxation of non-gaming revenue until its construction was complete had expired.

NagaCorp described the tax settlement as a “one-off” payment, noting in its latest filing that “as at the date of this announcement, there is no additional obligation, if any, for the period”.

MEF officials could not be reached yesterday to comment on the possibility of an additional tax obligation this year. Many analysts, however, have already included it in their financial projections.

“As it relates to taxation, our forecasts always assume that there could be an additional tax paid at some point during the year (similar to the last two years), so if the government were to assess any additional taxation it is unlikely to have an impact on our forecasts,” Govertsen said.

Michael Ting, a gaming analyst at CIMB Securities, said he would not expect the government to demand an additional tax payment this year, adding that the tax structure for the Kingdom’s gaming industry is due to be revised by new legislation.

“The government is still looking to publish its new gaming regulation by end of the year or next,” he said.


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