1H24 results fall short of our expectations

On August 27, Jinjie Holdings announced 1H24 results: total revenue of 0.293 billion US dollars, up 11% year on year and 8% month on month (recovering to 33% of 1H19). Among them, total gaming revenue was $0.283 billion, up 12% year over year, up 8% month-on-month (recovering to 32% of 1H19), and non-gaming revenue was $9.37 million.

EBITDA recorded $55.48 million, a year-on-year decrease of 61% and a month-on-month decline of 65% (recovering to 17% of 1H19), mainly due to impairment losses on the company's Vladivostok project. The company's performance fell short of our expectations.

Development trends

The pressure to refinance is removed. In July 2024, the company settled all of its maturing debts of approximately $0.472 billion, which we believe may ease the market's concerns about its equity financing plan. The management plans to prioritize the use of its future cash flow for the Golden World Phase III construction project before considering resuming cash dividends.

Continued growth in the number of visitors to Cambodia is expected to drive midfield business. In June 2024, the total number of visitors to Cambodia increased 26% year on year, returning to 117% in the same period in 2019. Among them, the number of Chinese visitors to Cambodia also increased, with a year-on-year increase of 57%, returning to 34% in the same period in 2019. Considering: 1) The frequency of direct flights to Cambodia is gradually increasing, and 2) the new Phnom Penh Airport (Dechong International Airport) is expected to start operation in February 2025, we believe that the number of visitors to Cambodia is expected to continue to increase, thus driving the company's gaming business growth, especially in the midfield sector.

The sources of foreign direct investment are more diversified, which is expected to bring in more business travelers and expatriates. According to data from the Cambodia Investment Board (Cambodia Investment Board), Cambodia's total foreign direct investment almost doubled year-on-year in 1H24, and China is still the largest source of foreign investment (accounting for 42.6%). However, we have noticed that the sources of foreign direct investment in Cambodia are gradually diversifying and are receiving investment from South Korea, Vietnam, and other ASEAN countries. We believe this will attract more business travelers and expatriates with high spending capacity to engage in gaming and other recreational activities in Cambodia. In addition, the company is also increasing sales services for high-end customers in order to increase business volume.

Profit forecasting and valuation

We lowered our 2024 and 2025 EBITDA expectations by 37% and 5% to $0.249 billion and $436 million, respectively, mainly due to impairment losses on the company's Vladivostok project and the possibility that it may take longer for the company to resume business. The current share price corresponds to 8 times 2024 and 4 times 2025 EV/EBITDA. We maintain our outperforming industry ratings, and considering that the company's business will take more time to recover, we switched to the 2025 valuation. Based on lower profit expectations and market valuation discounts, we lowered our target price by 14% to HK$4.80. The target price corresponds to 11 times 2024 and 6 times 2025 EV/EBITDA, with 44% upside compared to the current stock price.

risks

Regional competition intensified; the recovery in the number of visitors to Cambodia was slower than expected.