Investment bank Morgan Stanley has issued stocks of Hong Kong-listed NagaCorp an OverWeight rating, stating that the company scores better than regional rivals Macau, the Philippines and Singapore due to stronger growth opportunities and lower costs.
In a note outlining the company’s short-term prospects, Morgan Stanley analysts were highly bullish on NagaCorp – which operates NagaWorld in the Cambodian capital of Phnom Penh – on the back of EBITDA that has risen every year for the past 10 years bar 2009.
“Since 2011, its EBITDA CAGR has been 24% compared to 7% for Macau,” said equity analyst Praveen Choudhary.
“Naga 2 opened in December 2017, and the company saw EBITDA growth of 60% and 40% year-on-year in 2018 and 1H19, respectively, implying more than 40% ROIC, and the project is still ramping up.”
Comparing NagaCorp with its neighboring jurisdictions, Choudhary said the company “scores better than Macau gaming companies since Naga has a gaming monopoly through 2035, lower tax and lower labor cost. It has also grown faster than Macau since 2017 and should continue to follow that trend in 2019 and 2020.”
NagaCorp also “scores better than its peers in the Philippines and Singapore due to its better growth prospects, lower tax rate and higher dividend yield.
“Politically, Cambodia is less risky than the Philippines as far as reliance on visitors from China is concerned. Unlike Singapore, Cambodia allows junkets to operate at Naga.”
As a result, Morgan Stanley predicts EBITDA CAGR of 17% for Naga between 2019 and 2021, better than those for the gaming industries in Macau, Singapore and the Philippines.
Key value drivers include visitor growth, increased VIP roll driven by new junkets, ongoing Naga2 ramp and new gaming regulations.