Monday, June 30, 2008

NagaCorp Mulls Casino Rights Sale in Cambodia Capital

By Netty Ismail

June 30 (Bloomberg) -- NagaCorp Ltd., the monopoly casino operator in the Cambodian capital of Phnom Penh, said it may sell a license to foreign companies, giving them the right to develop a new gaming property in the city.

``NagaCorp may consider any subconcession proposal when the timing is right,'' Chief Executive Officer Chen Lip Keong, 60, said in an interview on June 27.

The company has a monopoly to operate casinos within a 200- kilometer (125-mile) radius of the capital until 2035, and isn't subject to any legal restriction on selling secondary licenses.

Cambodia's only publicly traded company is betting on growing wealth at home and in the neighboring countries of Thailand and Vietnam to increase its revenue base beyond gamblers from China, Malaysia and Singapore. Macau overtook the Las Vegas Strip as the world's biggest casino market after the city ended Hong Kong billionaire Stanley Ho's monopoly in 2002, spurring at least $25 billion of investment in the city by foreign operators including Las Vegas Sands Corp.

``As bigger regional players focus on the higher end, we expect NagaCorp will maintain its niche in the mass-end VIP segment,'' said Gavin Ho, a Hong Kong-based analyst at CLSA Ltd.

Singapore awarded bids for two casino resorts in 2006, cutting taxes on gaming revenue to the world's lowest for so- called high-rollers. Japan and Taiwan are also considering allowing casinos in an effort to boost tourism.

Shares Rise

Kuala Lumpur-based Genting Bhd., which will operate one of the two Singapore resorts, plans to build Southeast Asia's first Universal Studios theme-park at its property in the city. Genting is Asia's biggest publicly traded gaming operator.

NagaCorp rose 1.4 percent to HK$2.13 at the close in Hong Kong trading, the biggest gain in two weeks. The shares have fallen 16 percent this year, less than the 21 percent decline in the benchmark Hang Seng Index and a 31 percent drop in Galaxy Entertainment Group Ltd., a Hong Kong-listed Macau casino operator. Genting fell 29 percent.

NagaCorp is catering to ``regional mid-sized'' gamblers taken to its casino by junket operators, who provided about 45 percent of its gaming revenue last year, Chen said.

About 52 percent of revenue comes from the public casino floor. The operator's revenue rose 69 percent to $144 million in 2007.

``We are not competing head on with those high rollers in Macau,'' Chen, a Malaysian, said in Phnom Penh, where the company is based.

`Poor Man's VIP'

Citigroup Inc.'s Hong Kong-based analyst Anil Daswani, in a Feb. 18 report, said NagaCorp was part of the ``poor man's VIP'' market.

NagaCorp operated its casino on a barge moored along the banks of the Bassac River in Phnom Penh for eight years, before relocating in October 2003 to a permanent hotel and entertainment complex, NagaWorld, a few hundred meters away.

The company is expanding the complex to 700 hotel rooms and 300 gaming tables by next year. It had 508 hotel rooms and 176 gaming tables in June.

``They have done a good job attracting customers,'' said Billy Ng, a gaming analyst at JPMorgan Chase & Co. in Hong Kong. ``There will be more competition but I don't think we need to be concerned about it now.''

`Strong Perception Issue'

Visitors to Cambodia have risen to about 2 million from 118,183 in 1993, when Southeast Asia's second-poorest nation emerged from a two-decade civil war.

Chen owns 62 percent of NagaCorp after selling a 5 percent stake in the company in May for ``a small premium'' to Chicago- based Columbia Wanger Asset Management LP, he said.

The Cambodian operator is trading at 8 times its forecast earnings per share for 2009, compared with an average of 21 times for its regional peers, Ho at CLSA said in a report dated June 26.

Ho initiated coverage of the stock with a ``buy'' recommendation, setting a 12-month price target of HK$3.31. NagaCorp's profit is set to grow 37 percent to $77 million in 2009, according to the CLSA report.

``I am situated in a country like Cambodia, I have a strong perception issue,'' Chen said. ``If I don't produce earnings, I am invisible, nobody will notice me.''

To contact the reporter on this story: Netty Ismail in Singapore nismail3@bloomberg.net.

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