We met with Colour Holdings, and the following are key company research minutes:
An improvement in the daily earnings of each table. The company's flagship property, Jinbi Casino, remained strong, with daily revenue per gaming table hovering between HK $100000 and HK $120000 (compared with HK $80, 000 in 13). As for Huadu Casino, the operating performance of the casino continued to improve, with daily revenue per gaming table increasing to about HK $50,000 (compared with HK $40,000 to HK $45,000 at the beginning of the year and HK $30,000 to HK $35,000 in 13 years). The company recently expanded its casino management service to the Macau Jockey Club Casino, which has several of the company's own electronic baccarat tables. Through the Macau Jockey Club casino, the lottery is displayed to the market, and the advantages of no-chip betting, this technology increases the speed and safety of gambling games, benefits from the nature of full automation, calculates the revenue of gambling tables, thus reducing the mental burden of Dutch officials. At the same time, customers can still enjoy the same fun of playing cards as gambling on traditional tables.
Product presentation. The company is currently showing its products to the gaming market at the Asian International Gaming and Entertainment Fair (G2E Asia). Of the 1000 live hybrid game consoles (LMG) sold to Macau this year, 400 are new-generation LMG, according to management data. The new LMG sells for $25, 000 (compared with $17, 500 for the previous LMG), with a gross margin estimated at around 74% (around the previous LMG:71%).
Reiterate the buy rating. We believe that the company has great upside potential, and the recovery of the stock is an accumulation opportunity to look forward to more upside potential. Thanks to its lucrative LMG business and the stable source of revenue from its casino management business, we expect the company's earnings to be + 81% and 32% on an annual basis in 14 / 15, driving earnings before interest, tax, depreciation and amortization (EBITDA) + 126% and 56% on an annual basis during the period. Color is included in the MSCI Hong Kong small cap index (which will take effect after the market closes on May 30, 2014), and we believe that color can benefit from potential growth in market momentum and investment funds that track these indicators or stocks. We reiterate our buy rating on the stock, with a target price of HK $8.16.