Casino operations: Positive growth expectations are still maintained, and the growth rate has declined. We maintained the company's GGR forecast for the full year of 2014, but lowered the 2015 GGR forecast growth rate from 11% to 4%. The increase comes mainly from Huadu, where the Jockey Club and Lisboa Casino grew from a low base last year to a more reasonable level of operation. We expect the flagship casino Jinbihuicai to achieve 3% growth, mainly due to the addition of 100 new live streaming machines. Our forecast for the company's GGR 4% growth rate is roughly similar to Macau's overall low-end market growth. Although we forecast an overall midmarket growth rate of -6.6% in 2015, it is conservatively estimated that the low-end market will still achieve low unit growth.
Live streaming machine business: Sales forecasting tends to be cautious. We lowered our forecast for the number of live streamers to be configured for the year from 2,250 to 1,850 units, which is 30% below the company's guidelines. Since there is a 3-6 month trial period for overseas sales, the actual sales volume for 2015 is estimated to be 1,350 units, of which 900 were sold in Macau. The demand for live streaming machines in Macau mainly depends on 1) the supply and demand for gambling tables; 2) labor costs; and 3) the demand for updates. In the face of weak market demand, the problem of insufficient numbers of gambling tables has been greatly mitigated, as casinos can move some of their idle tables to newly built casinos, thereby reducing the demand for live streaming machines. However, demand for updates will also be delayed.
The launch of the second-generation aircraft was delayed. The company originally planned to launch a second-generation live streaming model at the beginning of the year. In addition to sales revenue, this model would also generate ongoing revenue (license fees calculated on a daily basis). However, due to the downturn in the industry, sales of second-generation aircraft are expected to be delayed until the second half of the year.
The earnings forecast for 2014/2015/16 was lowered. We lowered the company's net profit forecast for 2014 from HK$80 million to HK$70 million, and adjusted net profit from HK$115 million to HK$105 million. Non-recurring profit and loss stemmed from a loss of HK$35 million due to the company's early redemption of acceptance notes. At the same time, we lowered our 2015 profit forecast by 27% to 164 million (up 51% year on year), and lowered our 2016 profit forecast by 32% to 240 million (up 47% year on year), mainly due to lower GGR growth forecasts and machine sales forecasts. Influenced by market sentiment, we lowered our valuation and maintained our buying rating. Based on the current market's pessimistic expectations for the gaming sector as a whole, we have further lowered the company's valuation level. The latest target price of HK$2.50 corresponds to 6.5 times the 2015 EV/EBIT for the casino business and 7 times the EV/eBIT for the machine business.
Catalyst: The company was selected in the Hang Seng Small Market Capitalization Index a few days ago. We expect the Shenzhen-Hong Kong Stock Connect project, which may be launched in the second half of the year, to be a catalytic factor for stock prices. Risk factors: If the casino further delays the purchase of new machines from the second quarter to the third quarter or later, it will have a big impact on the company's revenue in the first half of the year.