Event: the Cambodian government closed all casinos from April 1, 2019, and casinos in Jinjie were affected by this. Gambling business was completely closed, and only some catering and shopping areas and hotel rooms of the first phase of the project continued to operate. Jin Jie Holdings is Cambodia's largest employer, currently employs 8500 people and contributed about 23% of Cambodia's tourism GDP in 2018. The company recently announced that with the permission of the local Ministry of Health, it will restart VIP business and jiaozi gaming machine business on July 8, and gambling revenue is expected to recover gradually.
The short-term epidemic in Cambodia has been basically brought under control, and the opening of the tourism industry is expected. According to the number of COVID-19 confirmed cases and the new daily confirmed cases in various countries, the epidemic situation in Cambodia, Vietnam, Thailand and Malaysia has basically been effectively controlled, of which the number of new confirmed cases in Cambodia has returned to zero since June 30, and only 10 cases have been confirmed. At present, although Cambodia has not opened up its tourism industry to the outside world, the restrictions on entry and exit policy are gradually relaxing, and the possibility of opening up tourism to countries with good diplomatic relations and basically subsiding the epidemic, such as China, is gradually increasing.
The company's business model is excellent, and its medium-and long-term growth momentum is still sufficient. More than half of the company's customers are from Southeast Asia, which will continue to benefit from industrial transfer and the development of labor-intensive enterprises. It is expected that GDP will maintain rapid growth in the future, and the wealth effect is significant. Superimposed on the company's own low-cost and high-quality gaming services, as well as the high commission given to intermediaries, the company has sufficient motivation to grow the number of customers and consumption per customer in the long run. At the same time, the company's brand-new project Naga Phase III is under construction and is scheduled to be completed in 2025. After completion, the company's operating scale will double. In addition, the company also enjoys a much lower gambling tax rate in Cambodia than in Macau, as well as low labor and land construction costs, leading the profitability industry.
Investment advice: we predict that the company's homing net profit from 2020 to 2022 will be US $0.30 million respectively, a year-on-year increase of-94%, 876% and 42%, respectively, corresponding to US $0.10 for EPS and US $0.10 for EBITDA and US $4.4 million for EBITDA. Based on the valuation of Hong Kong equities, taking into account the growth of the gold industry and the characteristics of the business model, we give Gold Holdings a target price of HK $10.80, corresponding to 13 times the 2021 EV/EBITDA, maintaining a "buy" rating.
Risk hints: the higher-than-expected risk of the impact of the epidemic, the increased competition risk of large casinos in Southeast Asia, the political risk of Cambodia, the risk of negative impact of irregular casinos in the port area of Sihanouk on the reputation of Cambodia's gaming industry, and the risk of share dilution in the future of the third phase of the project.