On November 14, 2023, Aobo Holdings announced its results for the third quarter of 2023.
In 3Q23, the company's adjusted EBITDA profit margin increased 1.6 pct month-on-month to 9.6%. On the revenue side, 3Q23 achieved net profit of HK$5.87 billion (Bloomberg's unanimous estimate was HK$5.96 billion), recovering to 71.2% in the same period in '19. The degree of recovery was +7.5 pct over the same period, slightly lower than market expectations. Among them, the gaming/non-gaming business achieved net profit of HK$5.41/46 billion respectively, recovering to 67.2%/251.4% in 3Q19, respectively. The faster recovery of the non-gaming business was mainly due to the large increase in guest rooms and retail sales brought about by Shanghai Lisboa. On the profit side, the 3Q23 company achieved an adjusted EBITDA of HK$570 million (Bloomberg's unanimous estimate was HK$61 million), recovering to 59.6% of 3Q19, and the recovery rate was +15.3 pct month-on-month, driving the company's adjusted EBITDA profit margin from 8.0% in 2Q23 to +1.6 pct to 9.6%, but there is still a gap of 1.9 pct compared to 3Q19. If satellite casinos are excluded, the company's adjusted EBITDA has recovered to about 80% of 3Q19, and the recovery situation of self-promoted properties is relatively good.
The 3Q23 market share of the company's midfield fair reached 15.0%, +0.3 pct over the previous month. 3Q23 achieved total revenue of HK$5.73 billion, recovering to 60.4% of 3Q19; VIP/midfield (including slots) revenue was HK$3.4/5.04 billion, respectively, returning to 11.6%/81.7% of 3Q19, falling behind the industry average of 26.3pct/11.6pct, but the gap between the degree of midfield recovery and the industry average narrowed month-on-month, driving the company's 3Q23 midfield share of +0.3 pct to 15.0% month-on-month. If we only look at Lisboa's single property, the market share of the property's 3Q23 VIP/midfield (including slot machines) was 1.7%/1.6%, respectively, -0.9pct/+0.4pct, respectively. The climbing speed was slightly slower than market expectations. However, the company stressed that in October, the midterm fair in Lisboa increased 55% month-on-month, and the business situation since November has also been outstanding. 4Q23 is expected to turn a loss into a profit.
The average daily operating cost of the company increased slightly in 3Q23 to HK$18.9 million. 1) The average daily operating cost of Singapore Lisboa increased by about 7% from HK$5.8 million in 2Q23 to HK$6.2 million in 3Q23, mainly due to the opening of 1,723 guest rooms in the 3Q Grand Lisboa (1,350 rooms in the Grand Lisboa, 271 Carl Lagerfeld Hotel, 102 Versace Hotel), an increase of nearly 50% over the approximately 1,150 rooms in 2Q. 2) The drag on the cost side of satellite casinos fell from an average of HK$1.8 million per day in 2Q23 to HK$1.6 million. The main reason is that the 2,740 employees released by satellite casinos have now settled in one-third (about 20% in 2Q). The company believes that with the continuous climbing of Upper Lisboa and the further restoration of the remaining properties, all remaining employees are expected to be arranged by the end of 2025.
Profit forecast and investment rating: We lowered the company's 2023-2025 net revenue forecast to HK$218.3/259.0 billion to HK$28.28 billion, and the adjusted property EBITDA forecast for 2023-2025 to HK$21.2/41.3/52.3 billion. The current stock price corresponds to 18.1/9.3/7.3 times EV/adjusted EBITDA.
Our target price was lowered to HK$3.8 to maintain our “buy” rating.
Risk warning: China's macroeconomic growth falls short of expectations, Macau's tourism recovery falls short of expectations, gaming market diversion, and VIP recovery falls short of expectations.