CICC: Maintains NAGACORP (03918) outperform rating but lowers target price to HK$4.40

CICC released a research report stating that, as the recovery of NAGACORP's (03918) gaming business may take longer, the company's EBITDA forecast for 2025 has been lowered by 25% to $329 million, and introduced a 2026 EBITDA forecast of $393 million. The company is currently trading at 5 times 2025 EV/EBITDA. The bank maintains an outperforming industry rating, but due to the downward revision of profit forecasts and adjustment of industry valuations, the bank has lowered the target price by 8% to HK$4.40, corresponding to 7 times 2025 EV/EBITDA. The main points of CICC are as follows: Mid-tier sector leading the company's recovery trend NAGACORP recently announced its 1Q25 gaming operating data. The company's total gaming revenue reached $171 million in 1Q25, an increase of 18% year-on-year, returning to 53% of 1Q19. Among them, mid-tier gaming revenue led the recovery, with a 24% year-on-year increase, returning to 120% of 1Q19; VIP gaming revenue remains under pressure, with a 17% year-on-year increase, but only returning to 29% of 1Q19. However, the company's 1Q25 net gaming revenue has already recovered to 92% of 1Q19, reaching $148 million. The bank believes that this is due to the gradual increase in the proportion of revenue from the high-profit mid-tier business, leading to an improvement in the quality of the company's revenue. Increase in tourist numbers to Cambodia expected to drive mid-tier business In February 2025, the total number of tourists to Cambodia and Chinese tourists to Cambodia recovered to 109% and 49% of the same period in 2019, respectively. Considering that: 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 operation in July 2025, the bank expects the government to focus on promoting the throughput of this new airport. The bank predicts that the number of tourists to Cambodia will further increase, which may drive the development of the company's mid-tier business. Expected dividend recovery in 2025 Management has stated that the company plans to resume dividends in 2025, but the dividend amount may be affected by capital expenditures for the Naga 3 project and the NagaWorld renovation plan. Management guides capital expenditures for 2025 to be around $70 million, mainly for the renovation of NagaWorld and the upgrade of gaming systems. The company's free cash flow in 2024 was approximately $96 million. Therefore, the bank expects the dividend ratio in 2025 to reach 60%. Risk warning: Intensified regional competition; slower-than-expected recovery in tourist numbers to Cambodia.