1H22 performance is slightly lower than we expected.
The company announced 1H22 results: total gambling revenue was $237 million, up 84% year-on-year, down 73% from 1H19; VIP gambling revenue was $78.55 million, down 2% year-on-year and 88% compared with 1H19; midfield gambling revenue was $103 million, up 264% year-on-year and 29% lower than 1H19; and electronic gaming revenue was $55.51 million, up 193% year-on-year and 27% lower than 1H19. EBITDA recorded $130 million, up 2759 per cent from a year earlier and down 61 per cent from 1H19. We attribute Golden World Holdings' performance to: the continuation of the upward trend in the midfield business; and 2) the increase in the number of VIPs transcoding as the number of international direct flights to Phnom Penh resumes. Due to the lower-than-expected performance of VIP, 1H22's performance was slightly lower than we expected.
Trend of development
At the performance meeting, the management said:
1) the average daily turnover of midfield business (the number of boxes in midfield and the number of bets purchased by electronic gaming machines) continued to recover and showed a positive trend, with 2Q22 growing by 15.9% month-on-month (returning to 80.3% in 2019), the highest since 2020. 2) as the local business for foreign customers returned to normal, the average daily transcoding number of 2Q22 high-end midfield increased by 14.5% month-on-month (back to 71.8% in 2019); thanks to the low base and the lifting of cross-border travel restrictions in Cambodia since April 2022, 2Q22 intermediary VIP business increased by 98.5% quarter-on-quarter. 3) the number of daily visitors to the gold industry increased by 20% to 5500 from the previous month (returning to the 2019 level of 50%); the company observed the return of low-and medium-consumption customers to gaming and casinos, as well as the shift from gaming tables to electronic gaming machines. 4) the company plans to retain sufficient cash flow to redeem bonds maturing in 2024 (effective yield of 14%), and then consider paying dividends. As of June 2022, the company had $213 million in cash and deposits on hand, and the 2H22 capital expenditure plan is approximately $140 million ($125 million to $15 million for Naga3,1400 and Naga2 maintenance). 5) the company expects that the recovery of 2H22 midfield and high-end midfield business will be driven by more factors (such as the return of customers such as China, Japan and South Korea). The Cambodian government expects the number of visitors to reach 7 billion in 2025 (compared with a peak of 6.6 billion in 2016), but the VIP business may still face adversity. 6) since April 2022, the electronic gaming business has been operating at 100% capacity (previously 50%), while each gaming table is allowed to accommodate 5 people (previously 3).
Profit forecast and valuation
As the current trend remains unchanged, we maintain basically the same income and EBITDA forecasts for 2022 and 2023. The current share price corresponds to 8.5x 2023 EV/EBITDA. We maintain an outperform industry rating and a target price of HK $8.80, corresponding to 11 times 2023 EV/EBITDA, which has 31.7% upside from the current share price.
Risk
The uncertainty of Naga3 project construction; the uncertainty of epidemic recurrence; the amount of Naga2 is slower than expected.