The midfield sector is leading the company's recovery trend
Goldworld Holdings (3918.HK) recently released its gaming operations data for the 1Q25 quarter. The company's total gaming revenue in 1Q25 reached 0.171 billion US dollars, an increase of 18% year over year, and recovered to 53% in 1Q19. Among them, midfield gaming revenue led the recovery, with a year-on-year increase of 24%, returning to 120% in 1Q19; VIP gaming revenue was still under pressure, increasing 17% year over year, but only recovered to 29% of 1Q19. However, the company's net gaming revenue in 1Q25 has recovered to 92% of 1Q19, reaching 0.148 billion US dollars. We believe this is due to the gradual increase in the revenue share of the high-margin midfield business, and the quality of the company's revenue has improved.
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The number of visitors to Cambodia is expected to increase to boost midfield business. In February 2025, the total number of visitors to Cambodia and the number of Chinese visitors to Cambodia recovered to 109% and 49%, respectively, in the same period in 2019. Considering: 1) The frequency of direct flights to Cambodia is gradually increasing, and 2) the new airport in Phnom Penh is scheduled to be put into use in July 2025. We expect the government to focus on boosting the volume of the new airport. We expect the number of visitors to Cambodia to increase further, which may drive the development of the company's midfield business.
Dividends are expected to resume in 2025. Management said the company plans to resume dividends in 2025, but the amount of dividends may be affected by capital expenditure for the Naga 3 construction project and the NagaWorld renovation program. Management has indicated that the capital expenditure for 2025 is estimated at around $70 million, mainly for the refurbishment of NagaWorld and the upgrade of the gaming system. The company's free cash flow in 2024 was approximately $96 million. Therefore, we expect the dividend ratio to reach 60% in 2025.
Profit forecasting and valuation
As it may take longer for the company's gaming business to resume, we lowered the company's 2025 EBITDA forecast by 25% to USD 0.329 billion and introduced the 2026 EBITDA forecast to USD 0.393 billion. The company is currently trading at 5x 2025 EV/EBITDA. We maintained our outperforming industry rating, but due to lower profit forecasts and revisions in the industry valuation center, we lowered our target price by 8% to HK$4.40, which corresponds to 7 times the 2025 EV/EBITDA, with 44% upside.
risks
Regional competition intensified; the recovery in the number of visitors to Cambodia was slower than expected.
