Fortune Cookies 凯升控股 (102:HK)

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1 12/213 2/214 4/214 6/214 8/214 1/214 12/214 2/215 4/215 6/215 8/215 1/215 Fortune Cookies Company Visit Not rated Summit Ascent Holdings Ltd Sector: Industrials Industry: Trading Companies & Distributo Sub-industry: Trading Companies & Distributo Key data Price (HK$) wk High (HK$) wk Low (HK$) 3.2 Market Cap (HK$m) 5,21 Market Cap (US$m) 648 Shares outstanding (m) 1,463 Free float 53.2% 1M Return -11.1% 6M Return -25.4% 52wk Return -3.7% YTD Return -1.3% Dividend yield (FY14) - S&P - HSCEI 9,747 Inst Ownership (Top 5) YAU LUNG HO 26.37% BEN JOHN PETER 1.84% CAPITAL GROUP COMPAN 5.7% FMR LLC 4.91% Source: Bloomberg Analyst Vincent Yu, CFA A BAM599 yuwj@swsresearch.com Phone: (+86) 凯升控股 (12:HK) 赌业新星 远东市场先行者 凯升控股为投资控股公司, 该集团主要业务为瓷砖及工程业务产品贸易以及博彩及酒店业务 截至 215 年 6 月上半财年, 公司瓷砖及工程业务分部录得收入 186 万港币, 同比增长 417%, 去年同期收入为 36 万港币 报告期内, 公司净亏损由上年同期的 5139 万港币收窄至 4376 万港币 亏损主要源于旗下拥有 6% 权益的俄罗斯博彩及度假村开发公司 Oriental Regent, 该公司持有俄罗斯 G1 Entertainment 公司 1% 的权益 G1 Entertainment 是一家获俄罗斯政府许可的赌场建设和运营商, 业务主要是在俄罗斯滨海边疆区中心城市符拉迪沃斯托克郊外的综合娱乐区发展博彩及度假村项目 押宝赌场项目 水晶虎宫殿 是凯升在俄罗斯滨海综合娱乐度假区的首个赌场项目, 于 215 年 11 月 11 日正式开业 由于建设进度推迟, 开业时间比预期的 15 年二季度中旬稍晚 水晶虎宫殿拥有含 121 个房间的顶级酒店和水疗养生中心,371 台老虎机,33 张 VIP 赌桌以及 37 张大众赌台 作为远东地区的首家赌场, 我们预计水晶虎宫殿在 218 年其他赌场建成前将享有垄断优势, 有望成为凯升主要的盈利增长点 该赌场主要吸引来自中国大陆 韩国 日本及俄罗斯本土的客户 税收优惠改善 EBITDA 利润率 与成熟的博彩市场相比, 俄罗斯政府提供的博彩及企业所得税税收优惠非常具有吸引力 具体来说, 当地博彩税率约为 1-2%( 每张赌桌每月的税额标准为 12.5 万卢布 ; 每台老虎机每月的税额标准为 7.5 万卢布 ), 非博彩收益适用的企业所得税税率为 2%, 而 22 年前凯升将免于缴纳该项税费 因此, 公司在为博彩中介提供更高佣金的同时也能取得较高的税息折旧及摊销前利润 (EBITDA) 管理层透露, 公司将 VIP 业务博彩毛收入的 55% 或码数的 1.6% 作为佣金支付给博彩中介 假设营运开支占 VIP 博彩毛收入的 2%, 我们预计公司 VIP 业务的 EBITDA 利润率能达到 42%, 远高于澳门的 1-12% 管理层实力雄厚 凯升主席是澳门 赌王 何鸿燊之子何猷龙, 其同时也是新濠国际 (2:HK) 和新濠博亚娱乐 (MPEL:US) 主席兼行政总裁, 拥有雄厚的实力以及丰富的从业经验 通过多年积累, 何猷龙已与博彩中介龙头建立了紧密的合作关系, 为其远东赌场 VIP 业务的发展提供了坚实的基础 汇率风险 市场担心卢布贬值会对公司业务产生负面影响 不过据我们了解, 凯升的资本开支主要是以卢布计价, 这意味着卢布对美元或港币贬值会降低公司的运营成本 对于按港币结算的 VIP 业务来说, 卢布汇率变化不会对其产生影响 同时, 考虑到大多数海外大众玩家都会先兑换卢布, 再通过赌场兑换现金筹码 ( 每单位筹码相当于 1 美元或 6 卢布左右 ), 我们预计卢布汇率变化对海外大众业务的影响也很小 另外, 卢布贬值也能吸引更多的游客到俄罗斯 然而, 对于本地大众博彩业务来说, 卢布贬值影响负面 鉴于此, 公司自 215 年 1 月 8 日试营业以来已经减少了老虎机和大众赌桌的台数同时增加 VIP 赌桌的数量 估值 根据 年一致预期, 凯升目前股价对应的 16 年 EV/EBITDA 为 7.6 倍,17 年 EV/EBITDA 为 1.4 倍, 相对于澳门同行折价超过 2% Volume Price 2k 18k 16k 14k 12k 1k 8k 6k 4k 2k k Financial Table 11A 12A 13A 14A Revenue (m) YoY (%) -18.8% -86.4% -19.6% 177.1% Net income (m) 2 (6) (8) (79) YoY (%) -82.6% -44.2% % -.8% Diluted EPS YoY (%) -83.% -44.8% 923.7% -14.7% ROE (%) 1.5% -19.1% -24.6% -9.7% Dividend yield (%).%.%.%.% Free cashflow per share Source: Bloomberg PE (x) PB (x) EV/Ebitda Debt/Equity.... Please also find SWS Research on your Bloomberg terminal at SWSE <GO>, FactSet and S&P Capital IQ.

2 Northern lights Investment holdings firm Summit Ascent s assets can be split into two distinct business segments sales of building tiles and engineering services; and casino management. In 1H15, revenue of HK$18.6m (+417% YoY) stemmed from the tiles segment only, while overall net loss for the period came to HK$43.76m (vs a net loss in 1H14 of HK$51.39m). The company s gaming business comprises casino development in Vladivostok, east Russia. In the zone. The Russian federal government and the Primorsky regional government established a 619ha Integrated Entertainment Zone 15km from the Vladivostok International Airport, as a tourist development. Summit Ascent s IEZ project, the 121- room Tigre De Cristal casino, officially opened on 11 November 215 (originally set for mid-2q15) is the first casino in the region, serving gaming demand from mainland China, east Russia, South Korea and Japan. The company expects it will enjoy a monopoly in the region until 218 and for Tigre De Cristal, with 371 slot machines, 33 VIP tables and 37 mass tables, to become its main revenue source. Favourable tax policies. Russia will levy a c.1-2% gaming tax (Rbl125k per table per month; Rbl7.5K per slot per month) and 2% corporate tax on non-gaming income, although the company has negotiated a corporate tax exemption until 22. Consequently, it will be able to offer higher commission to junkets to bring in high rollers. Company management indicates it offers 55% of VIP gross gaming revenue (GGR), or 1.6% of rolling income to the junkets, with a further 2% of VIP revenue in operating expenses, resulting in Ebitda margin of c.42% (vs 1-12% for Macau operators). Experience at the helm. Chairman Lawrence Ho, son of Macau gaming magnate Stanley Ho, is also chairman and CEO of Melco International Development (2:HK) and cochairman and CEO of Melco Crown Entertainment (MPEL:US), turning the loss-making business around after taking over in 21. Forex risks. We note market concerns over the impact of depreciation of the ruble on the company s gaming business. However, as its Opex is primarily ruble-denominated, further depreciation would be a boon. For the company s VIP business settlements, conducted in Hong Kong dollars, the ruble exchange rate will have no impact, while overseas mass gamers generally convert their respective currencies to rubles prior to exchanging for chips at the cage and a cheaper ruble heightens the attraction of travel to Russia to gamble. We note that the weaker ruble will impact the mass business targeting local players, as a result of which, Summit Ascent cut the number of slot machines and mass tables and increased the number of VIP tables after its soft opening on 8 October 215. Valuation. Based on consensus forecasts, the company s stock currently trades at 7.6x 16F and 1.4x 17F EV/Ebitda, representing a discount of over 2% compared to Macau peers.

3 Northern lights The company s hotel and gaming business is focused on casino development in east Russia s Vladivostok City, where, through its 6% holding in joint venture Oriental Regent, it controls G1 Entertainment, a licensed casino developer/operator. Figure 1 Corporate structure Lawrence Ho John Peter Wang Public shareholders 5% 29% 1.4% 57.5% Melco International (2:HK) Summit Ascent Holdings (12:HK) 3.1% Firich Enterprises (876:TW) Petr Sindyukov, Russian businessman Children and relatives of Oleg Drozdov 1% 1% 1% 1% 1% New Crescent Summit Ascent Russia Limited (SARL) Firich Investment Perfect Giant Discretionary Trust 5% 6% 25% 2.5% 7.5% 1% Oriental Regent (HK firm) 1% G1 Entertainment (formerly the First Gambling Company of the East) The Russian federal government and the Primorsky regional government established a 619ha Integrated Entertainment Zone 15km from the Vladivostok International Airport, as a tourist development. Russia will levy a c.1-2% gaming tax (Rbl125k per table per month; Rbl7.5K per slot per month) and 2% corporate tax on non-gaming income, although the company has negotiated a corporate tax exemption until 22. Consequently, it will be able to offer higher commission to junkets to bring in high rollers.

4 Russia Macau South Korea Singapore Taiwan Japan Las Vegas Philippines Australia Malaysia Cambodia New Zealand Fortune Cookies Figure 2 Gaming and corporate tax comparison VIP Mass Corporate Effective tax rate on GGR Source: CEIC, SWS Research Note: Macau levies 12.5% tax on non-gaming profit - negligible; Taiwan imposes 15% corporate tax on non-gaming profit in the first 15 years, 16% in the 16 th -25 th year and 17% afterwards. Figure 3 Figure 4 VIP play earnings breakdown in Tigre de Cristal VIP play earnings breakdown in Macau Note: Assumes hold rate of 2.85% of GGR, assumptions as based on company guidance Source: Listed company public filings, SWS Research Note: Assumes hold rate of 2.85%,

5 Figure 5 Figure 6 Mass play business earnings breakdown in Tigre de Cristal Mass play business earnings breakdown in Macau Note: Includes player incentive costs of 7.5% of GGR, based on Macau average Source: Listed company public filings, SWS Research Figure 7 Visitor sensitivity analysis for 216 (Visitors per day) Bullish (1,) Base (7) Bearish (5) Consensus Mass market (slots included) Foreign mass players 158,228 11,759 79, , Local mass players 152,23 16,416 76,11 539, Total no. of mass players 31,25 217, ,125 7, VIP market No. of VIP players 54,75 38,325 27,375 4, No. of visitors daily 365, 255,5 182,5 74, Note: Based on management visitor guidance for the debut month (11 November - 11 December 215) of 6-8 visitors per day, using Macau average breakdown for visitor groupings. Figure 8 GGR sensitivity analysis for 216 GGR forecast 216E (US$mn) Bullish (1k/d) Base (7/d) Bearish (5/d) Consensus No. of foreign mass players 158,228 11,759 79, , Foreign mass GGR (US$m) * avg. spend per visitor: US$ No. of local mass players 152,23 16,416 76,11 539, Local mass GGR (US$m) * avg. spend per visitor: US$ Mass market GGR (slots included) (US$mn) Mass table GGR Slot GGR No. of VIP players 54,75 38,325 27,375 4, VIP market GGR (US$mn) * avg. spend per visitor: US$5, Total GGR (US$mn) GGR per VIP table per day (US$) 22,727 15,99 11,364 23,246 GGR per mass table per day (US$) 3,428 2,399 1,714 5,154 GGR per slot per day (US$) Source: Company data, Bloomberg, SWS Research Note: Assume foreign mass players spend per capita US$26 per visit vs. local mass players US$11 per visit, while VIP players spend US$5k per visit, based on Sttreet

6 Figure 9 GGR sensitivity analysis for 216 Lot 9 (Tigre de Cristal) Lot 1 % owned by SA 6 6 Location IEA IEA Debut November Land area (sqm) GFA (sqm) 3163 n/a Investments Capex (US$m) Working capital, VAT and others (US$m) 28 Facilities Hotel rooms 121 3x 4-star/2x 5-star rooms Slots VIP tables 33 1 Mass tables 37 7 The Tigre De Cristal casino is the first in the region, serving gaming demand from mainland China, east Russia, South Korea and Japan. The company expects it will enjoy a monopoly in the region until 218. Figure 1 Figure 11 Ideal location Flight data for neighbouring cities City Nation Flight time No. of flights/week Population (mn) Beijing China 2h5m Changchun China 4m Harbin China 1h Mudanjiang China 4m Hong Kong China 5h Busan South Korea 2h Seoul South Korea 2h2m Tokyo Japan 2h4m Figure 12 Visa policies for foreign national visitors Nationality Visa type Days of stay per entry Fee (US$) Mainland China Group tourist visa (for groups of 5-1) 15, visa exemption n/a Individual tourist via (single entry) Individual tourist via (dual entry) Transit visa Hong Kong Visa-free entry 14 South Korea Visa-free entry 6 Japan Tourist visa Transit visa Source: Russian Embassy, SWS Research Note: 1) In Nov 213, a draft legislation was approved by Russian Fed gov. allowing travelers from 2 countries to stay in Russia for up to 72h without requiring a Visa, provided they are traveling on one of the Russian carriers. Most EU countries, China, Japan and US are on the list. 2) For Japanese, application submitted 1 days in advance is free.3) With Vladivostok free port bill passed by Russian State Duma in early July 215, Chinese visitors will be allowed to obtain a visa on arrival for 8 days from Jan 1, 216.

7 Figure 13 Summit Ascent share placement history Offer price (HK$) Shares issued (m) Proceeds (HK$m) April October April Total 1,169 Source: SWS Research Figure 14 Figure 15 The City of Vladivostok Tigre de Cristal casino resort Figure 16 Figure 17 Project overview New highways connecting airport and city and IEZ

8 EBITDA Hist Projected Actual Projected % Change FY1 21 FY1 212 FY1 214 FY1 216 FY % 2% % -2% -4% -6% -8% -1% -12% -14% Diluted EPS Bef XO Items Hist Projected Actual Projected % Change FY1 21 FY1 212 FY1 214 FY1 216 FY % 4% 3% 2% 1% % -1% -2% Net Income/Net Profit (Losses) Hist Projected Actual Projected % Change FY1 21 FY1 212 FY1 214 FY1 216 FY % 15% 1% 5% % -5% -1% -15%

9 Sales/Revenue/Turnover 12 Hist Projected Actual Projected % Change 2% 1 15% 8 1% 6 5% 4 % 2-5% FY1 21 FY1 212 FY1 214 FY1 216 FY % Return on Equity Hist Projected Actual Projected % Change FY1 21 FY1 212 FY1 214 FY1 216 FY % 2% 15% 1% 5% % -5% -1% -15% -2% Cash Flow per Share Hist Projected Actual Projected % Change FY1 21 FY1 212 FY1 214 FY1 216 FY % 1% 5% % -5% -1% -15% -2% -25%

10 Appendix Income Statement HK$m Revenue Operating Income Pretax Income Income bef XO Items Net Income Basic EPS Before XO Items Basic EPS Diluted EPS Before XO Items Diluted EPS Dividends per Share.... Ebitda Return on Common Equity Source: Bloomberg Balance Sheet HK$m Total Current Assets Total Long-Term Assets Total Assets Total Current Liabilities Total Long-Term Liabilities.... Total Liabilities Total Shareholders' Equity Shares Outstanding Book Value per Share Tangible Book Value / Sh Shareholder Equity/Total Liab Source: Bloomberg Cash Flow Statement HK$m Net Income Depreciation and Amortisation....1 Change in Working Capital Cash - Operating Activities Capital Expenditures Cash - Investing Activities Cash - Financing Activities Net Changes in Cash Free Cash Flow Free Cash Flow / Basic Sh.... Free Cash Flow / Diluted Sh.... Cashflow per Share.... Source: Bloomberg

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