Event
On September 19, 2018, the company released its semi-annual report that in the first half of 2018, the company achieved operating income of HK $19.857 billion, down 1.61% from the same period last year, and realized net profit of HK $345 million, an increase of 109.36% over the same period last year.
Brief comment
In 2018, H1 benefited from the decline in financing costs, resulting in high net profit growth.
The decline in operating income during the reporting period was mainly due to the adoption of new income recognition criteria in accounting, which increased by 6.5% year-on-year after adjustment according to previous criteria. Operating expenses fell 4.58% year-on-year, thanks to good cost control, operating profit increased by 31.58% year-on-year. In addition, the official opening of Hotel Admiral Moppers and Limassol CyprusCasinos Casino in June 2018, as well as the start of construction of the Cyprus integrated resort project City ofDreams Mediterranean, have increased the company's long-term borrowing since 2015, of which 2016H1's long-term loan is 24 times that of the same period in 2015. During the reporting period, the company's long-term borrowing decreased by 7.23% compared with the same period last year, and the decline in financing costs led to a further increase in net profit, an increase of 109.36% compared with the same period last year. The company's asset-liability ratio is maintained at 35.1%, with a strong long-term debt repayment ability.
The company's business has developed steadily, and the gaming business has performed well.
The company mainly operates casinos, resorts and hotels. According to the business income of H1 in 2018, casino business is still the company's core business, accounting for 87.39%. In 2018, the business revenue of H1 company's casinos and electronic gaming machines decreased by 7.5% and 24.8% compared with the same period last year, mainly due to the new revenue recognition criteria; the entertainment and resort business achieved a high growth of 80.28%, due to the high growth of guest rooms and catering service revenue. From the point of view of gambling operation, the midfield business of City of Dreams is outstanding. The betting turnover in the VIP hall decreased by 12.9% compared with the same period last year, and the betting amount under the middle table increased by 10.9% compared with the same period last year. Macau New Haofeng and Studio City International Holdings performed well and had growth potential. Among them, the betting amount under the VIP hall and the midfield table increased by 27.7% and 41.6% respectively. Studio City International Holdings is 54.5% and 24.4% respectively.
Hotel Admiral Mobius has a bright future, and the company is actively expanding its global layout.
Hotel Admiral of Dreams opened in June 2018. The $1.1 billion project is the world's first skyscraper with a free-form exoskeleton and is expected to be a steady growth for the company. At the same time, the company is expanding its global footprint. In June this year, C2 Casino in Limassol, Cyprus officially opened, and construction of City of Dreams Mediterranean, an integrated resort project, began, aiming to build the largest integrated resort in Europe, which is expected to open in 2021. Meanwhile, three C2 casinos in Nicosia, Lacana and Paphos are scheduled to open in 2018.
Investment suggestion: at present, the company is expanding its global layout, the new project in Cyprus is advancing steadily, and the Hong Kong-Zhuhai-Macao Bridge will continue to drive mainland tourists. It is estimated that the EPS from 2018 to 2020 will be 0.76,1.35,1.74 yuan respectively, and the current stock price corresponding to PE will be 21X, 12x and 9X respectively, giving the "overweight" rating for the first time.
Risk hint: the construction progress of new projects is not as expected; domestic policy changes lead to restrictions on the gaming market; and economic growth in the mainland is slowing down.