1Q24 results slightly exceeded market expectations

Aobo Holdings announced 1Q24 results on May 9: The company's net revenue reached HK$6.920 billion, up 73% year on year, up 8% month on month, and recovered to 80% of 1Q19 level. The company's adjusted EBITDA was HK$864 million, up 2,687% year over year, up 23% month on month, and recovered to 80% of the 1Q19 level, slightly higher than Bloomberg's agreed forecast of HK$841 million.

We believe that the company's better-than-expected performance was mainly due to increased market share of Upper Lisboa Resorts, Grand Lisboa, and other self-promoted casinos.

Development trends

Minutes of the company's management performance conference call:

During the May Day holiday in 2024, midtime gaming revenue from self-promoted casinos (including slots) recovered to 162% of the same period in 2019, up 42% year-on-year, and self-promoted casinos other than Lisboa's midgame revenue (including slots) recovered to 120% of the same period in 2019.

In April 2024, the market share of Lisboa Resorts reached 2.2%, compared to 2% in 1Q24.

Management believes that repairing the balance sheet is a higher priority than resuming dividends.

Management expects to open nearly 10 additional casual restaurants and auditoriums (concert venues) in Upper Lisboa by early 2025.

Profit forecasting and valuation

Since average midmarket growth drove the company's self-promoted casinos to perform better than expected, we raised the company's 2024 EBITDA forecast by 1% to HK$4.212 billion, while keeping the company's 2025 EBITDA forecast unchanged at HK$4.822 billion.

The company's current share price corresponds to 9 times 2024 EV/EBITDA. We maintain a “neutral” rating and target price of HK$3.30. The target price is 10 times the 2024 EV/EBITDA, with 12% upside compared to the current stock price.

risks

Lisboa's volume falls short of expectations; recovery may be slower than expected; competition in the industry intensifies, and market share may be lost.