Results for the first three quarters of 2020 are in line with expectations
Gold World Holdings reported operating data for the nine months to September 30: total 3Q20 revenue was $238 million (down 43 per cent year-on-year) and 3Q20 net revenue was $125 million (down 42 per cent); VIP transcoding fell 42 per cent year-on-year to $6.234 billion; the number of boxes in midfield fell 42 per cent year-on-year to $270 million; and slot machine purchases fell 36 per cent year-on-year to $456 million.
Trend of development
Driven by demand from local expatriates, Golden World Holdings' midfield and slot machine businesses have shown a strong recovery after resuming operations in July 2020, with the average daily turnover of midfield and slot machines reaching 93 per cent and 100 per cent of 1Q20, respectively, from August 1, 2020 to September 30, 2020.
According to the National Bank of Cambodia, 1H20's total foreign investment in Cambodia was US $1.408 billion, up 30 per cent from a year earlier, mainly from China, up 115 per cent from a year earlier. We believe that this consolidates Cambodia's growing expatriate population, which has been driving the recovery of the midfield and slot machine business since Golden World Holdings resumed operations in July 2020.
Although the number of VIP transcodes has only returned to 71% of 1Q20, we note that VIP gaming net income has recovered to 91% of 1Q20. We believe that this may be due to the higher profit margin (such as direct VIP betting and local VIP intermediary betting), which drives up the gross profit margin of the VIP betting business.
The upgrading of Jinjie Resort Hotel rooms was completed in June 2020, and a slot machine gaming and entertainment area converted from non-gaming uses has been added since 3Q20.
Profit forecast and valuation
We downgrade the forecast revenue for 2020 and EBITDA 16% peg by 11%, and the forecast revenue for 2021 and EBITDA 13% peg by 4%. This is mainly based on: 1) the recovery rate of VIP transcoding is slower than expected, fortunately, 2) the gross profit margin of VIP gaming business is relatively high. We maintain our outperform industry rating and maintain our target price at HK $12.00, corresponding to 11x 2021eEV/EBITDA. The company's current share price is HK $9.2, corresponding to 9 x 2021e EV/EBITDA, and our target price provides 8.7% upside space.
Risk
Uncertainty about the construction of Naga3 projects; uncertainty about the new betting tax rate in Cambodia; and slower-than-expected Naga2 release.