Business transformation recorded temporary losses, Vietnam made steady progress, and reserve projects such as Macau's Greek mythology casino, the Philippines, Vladivostok and Myanmar are catalysts for medium-and long-term performance.
The revenue of Sun City 2018H1 was 460 million yuan, an increase of 26% over the same period last year, due to the growth of revenue from tourism-related services and new sources of income from the resort management consulting business in the second half of 2017. The net profit attributable to the parent was-1.65 billion yuan, which was mainly due to a loss increase of about 940 million yuan due to changes in the fair value of convertible bonds. We believe that the company is still in transition, the loss is an one-off and has little to do with the main business. In the future, when the real estate business is spun off, the company will become a more pure gambling target. Although the Vietnam Resort has not yet opened, the company has now charged consulting fees from Yuntun Resort and Huian Resort. In the future, the company will hold a 34% stake in Hui'an Resort, which opened in mid-2019 and participate in the construction. It will also provide management services to Yuntun Resort, which opened in early 2020, charging a 14-18% EBITDA fee. The company's current cash is 41.69 million yuan. In view of the follow-up construction in Vietnam, we expect that there may be financing needs in the future. Previously delayed the completion date of the acquisition of the company to August 31 this year, as the star will not have a profit and no real impact.
The company actively expands the territory of the Asia-Pacific region and also intends to serve as the casino operation business. According to GGR Asia, the company is interested in participating in projects such as casinos in Vladivostok, the Philippines and Myanmar. In addition, according to Hong Kong Ming Pao, the assets of the Greek mythology casino in Taipa, Macau, are now owned by Chow Cheuk-wah, chairman of the Sun City Group, and have begun to redesign the renovation and license application procedures. Sun City Group is one of the largest brands of high-end gaming in the world, with VIP intermediary business all over the world, with experienced gambling operation team, strong marketing ability, rich customer resources and advanced customer management system. Although VIP intermediary business is not included in listed companies, we believe that operating gambling in the Asia-Pacific region with their history and experience will be a medium-and long-term catalyst for the company.
Vietnam's domestic economy takes off + tourism is booming = the beach gaming market with great potential in Southeast Asia
We believe that Vietnam is a potential gaming market in Southeast Asia. On the one hand, the current per capita wealth growth in Vietnam and the vigorous development of tourism will bring favorable support to the gambling industry. On the other hand, Vietnam is located in the tropics, has attractive sunny beaches, has gambling services that are not available on tropical islands, and is unique compared with other major gaming markets. Vietnam's private wealth grew by 210 per cent in 2007-2017. As local gambling restrictions are lifted, casino guests who previously had to go abroad (such as Cambodia) near the border will return to Vietnam. The number of tourists in Vietnam has achieved a high growth of nearly 25% for two consecutive years, providing a continuous supply of tourists for the gaming industry. Vietnam is currently one of the Southeast Asian countries most popular with Chinese tourists and South Korean tourists, with the number of tourists from the two countries being the first and second among Vietnamese visitors, with year-on-year growth of 34% and 56% respectively in the first seven months of 2018. At present, Chinese and South Korean customers are the main customers of Sun City, and the development of the Vietnamese gaming market is catering to both preferences. And the per capita consumption of Vietnamese tourists is low and has more space. The per capita consumption of Vietnamese tourists in 2017 was about US $2244, compared with US $7556 in the Philippines and US $3200 in Cambodia.
VIP and midfield two-wheel drive: will enjoy the international market, Yuntun enjoy the local gaming open dividend
We believe that with the opening of legal gambling resorts for Vietnamese locals and supported by tourists from Vietnam, mainland China, South Korea and other countries, Vietnam's gaming market will enjoy two-wheel drive with the simultaneous development of midfield and VIP betting in the future. Hui'an Resort, which the company will own 34% and participate in the construction, will make use of the convenient transportation environment, and with the improvement of hotel reception capacity, it will further embrace the international market. Huian Resort, located in central Vietnam, is well-equipped and is about a 30-minute drive from Da Nang Airport. The first phase of the seven-phase project, which is expected to open in mid-2019, will have 140 casinos, 1000 slot machines, 18-hole golf courses and 1000 hotel rooms. Yuntun Resort, which provides consulting and management services, is the first pilot project to legalize local gambling, and is the only legal casino that allows locals to gamble in the northern plains with high population density, and will enjoy the dividend of domestic passenger flow in Vietnam in the future.
In terms of valuation, compared with the gold industry, which is also a casino in Southeast Asia, we believe that the Vietnamese beach gambling business will attract Vietnamese local, Chinese and Korean tourists. Compared with the current 12x valuation of the gold industry, we think that after the climbing period of Huian and Yuntun Resorts in 2020, EV/EBITDA 12x is more reasonable. We expect the company to maintain its target price of HK $1.80 with an EBITDA of 730 million yuan in 2020, reiterating its "buy".
Risk tips: competition in Southeast Asia gaming market, Vietnam gambling license issuance, Sino-Vietnamese relations, etc.