CLSA released a research report stating that after NagaCorp (03918) earlier announced its operating data for the third quarter of this year, the broker downgraded its forecasts for the 2026 to 2028 period, as headwinds such as buy-in and roll-chip volumes appear to persist, cutting its net profit forecasts for this year, next year and the year after by 16%, 30% and 30% respectively, and lowering its target price from HK$6.7 to HK$4.8, while maintaining its Outperform rating in view of the stock's deep value.
The broker now expects mass gaming table and electronic gaming machine buy-in to be flat year-on-year next year, while roll-chip volume is expected to plunge 34% year-on-year, and assumes that average daily roll-chip and buy-in volumes next year will be similar to its forecast for the fourth quarter of this year, with only a modest recovery in the year after.
Cambodian inflation has eased since May this year, which may help mass buy-in recover in the future. A debt-free balance sheet helps withstand challenges, while the high-margin mass business has largely remained resilient and cash-generative, and the NagaWorld 3 plan, which is expected to be finalized before the second half of next year, could serve as a catalyst, with room for an upward revision in the dividend payout ratio thereafter.
The broker noted that based on its lowered forecasts, NagaCorp's current price equates to 2.8 times EV/EBITDA and a 4.9% dividend yield for next year, and it expects net cash of US$283 million next year.
The broker has rolled its valuation base forward to net asset value at the end of next year, and, given the flat growth outlook, has lowered its target EV/EBITDA multiple to 5.8 times (0.5 standard deviations below the long-term average).
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