I rather see a sustainable move based on fundamentals than see the vagaries of daily trading take it up for no apparent reason. As I said earlier given a choice between it going to $2.50 with a comment accompanying the Dec. RCT press release saying conditions merited a loosening of credit and seeing it go to $3.50 before year's end absent such an announcement give me $2.50 every time. Credit policy could be the difference between them bumping along at $30M NI a year trying to expand cash play and making twice that amount with a better divi. It is all about credit and the Chinese economy unless or until they have the opportunity to open a room in a jurisdiction that affords them higher margins.
According to our checks, Macau table-only gross gaming revenue (“GGR”) is MOP15.2b through December 15. Inclusive of slot revenue, December’s GGR run-rate indicates a full month GGR of MOP32.5b, or +15% YoY. Our December forecast remains MOP31.7b, or +12% YoY.
Market Share. Also according to our checks, month-to-date December table market share is: SJM at 25.3% (vs. slot-inclusive November share of ~23.3%), Galaxy at 17.2% (vs. ~18.7%), LVS at 22.8% (vs. ~21.9%), MPEL at 12.7% (vs. ~13.7%), WYNN at 11.7% (vs. ~11.4%), and MGM at 10.3% (vs. ~11.0%).
The HK exchange rules allow for the application to be filed but remember the sponsor must complete a considerable amount of work before they will be prepared to go ahead with the application. The description of what the old sponsor did was extensive and may not be done in 2 months by the new sponsor.
Ultimately I believe the price the stock achieves will have much much less to do with the buyback and the listing and much more to do with credit and direct play. The earnings power is there for sure, but to be realized conditions have to improve.
What is not debatable is the dividend paid in April is based on the results from 2013.
HONG KONG--(BUSINESS WIRE)-- Asia Entertainment & Resources Ltd. ("AERL" or the "Company") (NASDAQ: AERL), which operates through its subsidiaries and related promoter companies as a VIP room gaming promoter, today announced that its Board of Directors has authorized a regular semi-annual cash dividend of $0.10 per outstanding ordinary share each year after the release of the Company's financial results for the six months ending June 30, and, for each year after the release of the Company's financial results, an amount per outstanding ordinary share equal to (i) 15% of the Company's non-GAAP net income for the most recently completed fiscal year less the amount paid pursuant to the immediately previous six-month dividend, divided by (ii) the number of ordinary shares outstanding on the record date for such dividend.
"To say that the first quarter of 2014 will have no effect on the dividend is debatable."
Yes and no. I suppose you could make the argument they might be more inclined to pay a special dividend for 2013 if Q1 of 2014 shows improvement. But we should be clear on one point. The dividend they pay or don't pay after the year end financials have been filed at the end of fiscal 2013 is based on the net income number for 2013, period.
I would suggest you go back and re-read the press release back in 2011 when they announced they would pay a dividend in the first place. It lays out what the terms are and how it is calculated.
Then look at the numbers from last year so you have an example of how the math works out. I think you'll find the case toast has laid out to be pretty convincing.
Sorry to pour cold water on the optimism, since we need some, but we should try to stick with the facts. The earliest they will be able to file the HK listing application is late Jan since they just hired a new sponsor in late Nov. (The HK exchange requires a 2 month lag period) Then it will probably be another 2-4 months for the HK exchange to go through the review process. Once listed the multiple will be comensurate to the present and future earnings expectations. Right now that certainly does not merit a p/e close to 20, IMO.
A year end dividend, if my assumptions are right, will require them to do a one-time payment in excess of 15% of NI or there will not be one. Unless as toast said there is an adjustment to NI having nothing to do with operational income.
There it is. I could be wrong but these are the facts as I understand them.
But the dividend is based on net income for 2013 so what happens in Q1 of 2014 does not matter. The annual divi is paid in two installments. One after Q2 results are issued and one after Q4 results are issued. So far they have paid an 0.08 divi for 2013. I agree with toast, unless somehow amoritization of assets increases the net income number they use as a metric for the divi payment there will not be one following the release of year end financials.
At the end of Bain's note he mentions MPEL management's remark that VIP could be stronger than expected next year. However, there are a number of caveats to the comment. One, as mentioned in a note on WYNN the other day, is WYNN reflects the general trend in Macau by moving tables away from under performing VIP junkets to premium mass. There is also language to that effect in the MPEL note. The concessionaires only have so many tables alloted to them and MPEL is shifting some VIP tables at Altria to mass at COD.
The ascension of premium mass and the decline of credit VIP is no secret, it's a trend that is continuing heading in to 2014.
The other thing of note in Bain's report is high junket demand to operate in the new casino in Manilla. Whether IKGH is considered by MPEL as a candidate for one of the rooms is not known. Certainly there are much larger junkets to choose from. IKGH's client list is, as we know, comprised primarily of high end credit players which under the current conditions I would say is a disadvantage.
Of much greater significance are VIP trends and IKGH's credit policy. I would trade a drop to $2.50 for commentary in early 2014 saying they are seeing DSO's becoming less of a concern and are therefore extending credit to agents again.
Key takeaways from meetings with MPEL management
Yesterday, we hosted investor meetings with MPEL Co-Chairman and CEO Lawrence Ho, and Geoffrey Davis, CFO and Treasurer. Meetings reaffirmed our bull thesis and covered a wide range of topics, both company specific and market-wide. Last week, we named MPEL as our top casino gaming stock pick in CY14 (Best Idea for 2014 – MPEL), the 5th consecutive year MPEL leads our stock selection list in the sector.
Projects. City of Dreams (“COD”) Manila, the only significant casino opening in Asia next year, is on track/budget for mid-2014 and COD’s Manila junket demand already outpaces VIP room accommodations. As the only Philippines operator with an infrastructure presence in Macau, Manila offers an alternative for certain VIP patrons seeking venues outside Macau that may otherwise go to Australia, Singapore or Cambodia. In terms of the mass segment, MPEL noted partner SM Group’s multi-million database in the Philippines as a distinct competitive advantage.
Macau Studio City (“MSC”), the next full casino resort to open in Macau is on track/budget for a mid-2015 opening. Podium structures are being raised and management expects towers to be up by summer of next year. Management noted MSC direct adjacency to Hengqin Island, where Phase 1 of the Chimelong hotel just opened.
Hotel tower 5 at COD recently broke ground, is of “iconic” design geared to premium mass, 1.5x size of its Altira property, and on schedule to open late 2016.
Other. Management reiterated it is reviewing its shareholder capital return policy, including dividends and share repurchases – and while it continued to state a 1H14 decision timeline, we believe there is strong potential for regular dividend to be announced by its 4Q13 earnings conference call. MPEL cited healthy progress with potential partners in Japan, and we continue to believe MPEL (which can also showcase developments in Australia via MPEL Co-Chairman James Packer), is on the short-list of potential operators in Japan. MPEL is likely to reaccelerate its table mix shift from Altira VIP to COD premium mass next year.
Macau market outlook. MPEL anticipates gross gaming revenue growth of 15% to 20% in CY14, above consensus estimates of ~12% and our current estimate for 14%. It continues to believe the market will be powered by the mass segment via visitation increases (infrastructure/access), but also sees VIP as a potential underrated driver to the upside of its market estimate range (no 1Q13 China leadership handover disruption, stable China GDP growth, and China market reforms for accelerated wealth creation).
It's only up on low volume because the group is higher on news of Dec GGR strength. But as we know nothing will change for IKGH until they loosen credit. I expect the selling pressure to continue through the end of the month.
Some context on the purchase from Preissler..............
"This deal is a backdoor listing into a HK shell, with some other financial engineering behind it to try to close the transaction by raising outside capital. It is not an actual acquisition. Therefore, the initial valuation and structure is not totally relevant until after it trades. Let's see how the final structure and terms work out."
We keep talking about how much better things COULD be if they get some credit play back. I just thought I'd quantify it with some precise numbers so everyone understands exactly what the difference is.
Using a static $1.5B RCT and a hold of 3% for a whole year, and Bain's assumption of about $1.6M a month in SG&A expenses and taxes, predominantly cash play at a commission rate of 1.1% generates $2.15M in monthly net income. On the flip side commissions to credit agents is .95% or less and there is zero commission for direct play. At a .95% commission rate net income generated is $4.4M a month or more than twice the NI than under the cash play scenario.
Of course each month is a blend of both cash and credit play. But you can see why Preissler has spoken about the kind of dramatic difference an increase in credit and direct play can have. The other advantage of credit play being the hands that are played by credit players are much, much larger creating more chip turnover so boosting RCT. Lets say if credit players were given a moderate amount of credit again RCT would be closer to $1.8B than the approx. $1.5B they have been averaging. At a blended commission rate of 1%, $1.8B RCT generates $4.7M in monthly NI or around $56M NI per year.
It's all just an exercise in working the math based on speculation, but you get the picture of how much more profitable non-cash play can be. Unfortunately it is impossible to know when or if the credit policy will change.
Not suggesting Bain's rationale is spot on, just thought I'd give those who missed it the chance to read it. I very much appreciate you sharing your thoughts on the board. That kind of granularity is rare among posters. I tend to be a investor in secular trends so as long as this remains intact the weekly ups and downs don't concern me. My position is deeply in the black and I have no plans to cash in until circumstances change though I will admit to trimming a bit shortly after it hit $37 a while back. The nominal number of shares I sold were bought back at $34.70 so very happy to see it come back on the generally positive news cycle including LVS' debt upgrade as it bodes well for the group.
As you can see from the date of the original post the PT was raised some time ago. But for people who missed the note it is worth reading so you understand why the stock is rising and why it will go higher.
Maybe a review of the past is in order. The overall growth in VIP play actually went negative in 2012 and with it down went IKGH's (then AERL) stock price. Tax loss selling and pessimism drove the price down to $2.50 at the end of Dec 2012 only to see it rebound to $4.50 starting Jan 1, 2013, I suspect in large part because of the buyback.
Look at the RCT press release for Oct 2012. It says they had tightened all the way back then and haven't aggressively extended credit since as far as I can tell. So the company has gone through 5 qtrs of depressed results as they wait for things to change.
Chinese PMI was good as signs of a decent continued global recovery appear to be evident. After correcting for a while the stock just might make a run at $40 before y/e if the general market holds in there with all eyes focused on the 10 year yield.