The first casino in the complex entertainment district of the Russian Far East. 2.5-hour flight circle covers 226 million residents of Northeast China
Stable performance in the first half of 2016 is expected to continue to benefit from the demand of Chinese and domestic tourists in the second half of the year, driving a sharp increase of 118%/216% in total gaming revenue (GGR) /property EBITDA compared to the first half of the year, respectively
It is well positioned in a market where demand exists, but the current forecast EV/EBITDA valuation for 2017 is 30% off compared to Macau peers. The first coverage gave a buying rating. The target price was HK$2.70, which is equivalent to 13 times the EV/EBITDA forecast in 2017
The business of Kaisheng Holdings
Kaisheng Holdings revealed 60% of Dongjun's actual shareholding to operate Crystal Tiger Palace. The casino was officially opened in November 2015 and is located in the Esplanade Entertainment Complex (IEZ), close to Vladivostok. Management expects to open Phase 2 next to the existing property in 2018. VIPs are mainly from neighboring Northeast China, while midfield customers are mainly locals and domestic Russian tourists. We expect its 2016/17 GGR to reach 0.3%/0.5% of Macau, respectively.
EBITDA is expected to improve in 2016 and increase 91%/37% respectively in 2017/18. We expect five factors to drive growth: increased convenience of access to the area, expansion of market size due to peer participation, operation of room-specific gaming intermediaries starting in mid-2016, and highly differentiated non-gaming facilities and improved profit margins. As a result, we expect the 2016 EBITDA to be HK$162 million (compared to 2015 LBITDA of HK$15 million), and the second half of the year is expected to account for 78% of the year due to seasonal factors and the introduction of new room-specific gaming intermediaries. Benefiting from the cluster effect brought about by the opening of other properties, we believe the property will continue to expand in 2017/18, with an estimated EBITDA of HK$309/422 million for 2017/18, respectively.
New markets, strong growth, attractive valuations
Kaisheng Holdings' current stock price is equivalent to 8.5 times the 2017 EV/EBITDA forecast, which is 30% off compared to Macau casino operators. We expect stock prices to be reassessed when the following situations occur: 1) specific room gaming intermediaries are expected to start operating in the second half of 2016 to boost the business of high-end customers; 2) when the weather improves suitable for domestic tourists, the property is expected to have its first peak season in the 3rd quarter of 2016; and 3) the size of the midmarket business reaches a level that can offset the risk from currency exchange rate fluctuations.