Please stand by. Good evening. You are listening to NagaCorp 2018 Interim Results Overseas Investor Conference Call. I would like to now introduce Kevin Nyland, Vice President, Investor Relations, to begin the call.
Good evening, everyone. Welcome to NagaCorp's 2018 Interim Results Overseas Investor Conference Call. Although you are in a listen-only mode, there will be an opportunity to ask questions. Please follow the instructions given at that time if you would like to ask a question. For your information, this call is being recorded for replay purposes. Now, let me introduce our senior executives on the call today. Philip Lee , Executive Deputy Chairman, and Sean Tan , Chief Financial Officer. Also present on the call today are my colleagues from our investor relations team. Now, I'll turn the call over to Sean Tan for the presentation.
Hi. Thank you, Kevin. Good evening, or good morning to everyone. Thanks for joining our call. Let me begin with the presentation. I'm pleased to inform that we had a record year for our interim results since IPO in 2006. Gross gaming revenue increased by 85% to $713 million, while VIP revenue soar by 163% to $553 million. Let's move on to slide number one. We are seeing consistent steady growth in GGR, EBITDA, as well as net profit. Although the reported net profit after tax increased by 20%, net profit after tax should have increased by close to 100% if we remove the impact of 2017 EGM $60 million assignment of rights, which the company has not opted in first half 2018. On the apple-to-apple comparison, net profit after tax should have increased by almost double.
Moving on to slide two, the 85% increase of gross gaming revenue was contributed by all segments across the board. Mass market table buy-ins increased by 53%, while EGM buy-ins increased by 22%, with a total buy-ins of over $1 billion in the first half of 2018. VIP market GGR increased by 163%, outpaced the 117% increase in VIP rolling. Reason being, first half of 2018, win rate was 3.3%, which is higher than 2.7% recorded in first half 2017. Moving on to slide three. After years of carefully planned strategic VIP market development, we are finally seeing success in the VIP market segment. With the increase of 163% in VIP revenue, VIP revenue now contributed about 75% of our total revenue in first half 2018.
Just one thing to note that if you look at the table on slide three, it shows that EGM revenue decreased by 41%. Again, removing the impact of the $60 million assignment of rights, EGM assignment of rights, that we have not opted for in first half 2018, EGM revenue should have increased by 43%, supported by increased 22% increase in buy-ins, as well as win rate improved from 7.7% to 8.1%. Turning to slide four. Despite the significant increase from VIP market contribution, around 50% of NagaCorp's gross profit remains from the mass market. Gross profit contribution remains well-balanced despite the significant increase of VIP revenue. Turning to slide five. With the solid financials results, our market cap grew by 18% during the first six months of 2018.
In fact, if you look at the recent market close today, our market cap actually grew to $4.6 billion. Turning to slide six. We had a record year for our Cambodia VIP market. The main reason for the significant increase of 163% in VIP GGR, was as below. Number one, it's mainly because of the offering of world-class quality of Naga2, which commenced operation in November 2017. Naga2 has received very positive feedback from VIP customers, junket operators, bankers, analysts, et cetera. With that, we are actually having more operators from diversified geographical regions, apart from the traditional Southeast Asian junket operators. For instance, Suncity actually opened their fixed junket hall in March 2018 While JV operators between Macau junket operators Venus Group, as well as Malaysian junket Wang Group, they commenced their fixed junket hall in June 2018.
With more and more top-tier junket operators working together with NagaCorp, we are seeing higher-end VIP players coming to our casinos. Occasionally, we open up our table limits for selected customers, up to $1 million per game. Having said that, we continue to adopt a conservative gaming policy, diluting the risk by offering a little bit more incentive to our junket operators as part of our risk management policy. Apart from that, we are also seeing increasing investment-related visitation, especially from China. Again, this is a direct benefit towards our gross gaming revenue. Last but not least, our world-class competitive, unrivaled VIP services, that I believe is something that the other regional casinos can't offer or couldn't compete on that end.
Just before we turn to slide seven, I wish to highlight that if you look at the table down there on slide six, gross profit from VIP segment actually increased by 146%, from just $56 million-$138 million. This tells us that the significant increase in terms of VIP rolling, it wasn't achieved at the expense of our VIP segment GP margin. GP margin remains fairly stable at around 25%. Turning on to slide seven, mass market tables. Again, we had a record year of buy-ins of over $550 million. The 53% increase of buy-in was driven by capacity increase, world-class quality Naga2 offering, as well as steady inflow of visitation from Southeast Asia and East Asia, especially from China. If you look at first half this year, the growth was 53%.
Again, far outperformed the past five years' compounded annual growth rate of just merely 18%. Turning to slide eight, mass market tables. This is a very interesting slide in the sense that, as you can see, we have been increasing capacity, but at the same time, also driving higher return per table. Two important points that I want to emphasize. Number one is, if you look at how Naga2's table yield per day has been performing, just within a short period of time of six, seven months after commencement operation in November, the daily table yield of Naga2 mass market table increased from $3,500 in January 2018 to $5,700 in June 2018. In fact, the $5,700 in June, it's about 50% higher than what we achieved in existing Naga1.
Imagine that if we spend a little bit money refurbishing and upgrading Naga1 infrastructure and hotel quality, I believe that there is a significant room of uplifting the table yield that we currently have in Naga1. Turning to slide nine, mass market EGM. Similarly, we had a record year in first half of 2018. Buy-in increased by 22%, while win rate improved from 7.7%-8.1%. Turning to slide 10, similar to what we saw on the table yield of Naga2, EGM located at the Naga2, the win per unit per day also ramping up very rapidly. From just $114 back in January 2018, it increased by 46% to $166 per unit per day in June 2018. Turning to slide 11, our mass market segment continues to benefit from increasing visitation. For the first four months in 2018, international arrivals increased by 14% to 2.2 million visitors.
Of course, one of the highest growth is coming from China, whereby the Chinese arrival increased by 79% to over 600,000 visitors. China actually accounted for 30% of total arrivals in the first four months of 2018. Turning to slide 12, we continue to share our success with our shareholders by declaring dividend paid out of 60%, amounted to close to $110 million. With the share price of $7.60 per share, that gave an annualized dividend yield of 5.1%. If you look at since 2006 till today, we actually declared and paid out close to about $1 billion of dividend. Turning to slide 13, in terms of share price performance, it is very obvious that NagaCorp share price has outperformed Macau peers significantly, including recent past couple of months of tough equity market environment, the share price of NagaCorp continued to hold up pretty well.
Slide 14, it's self-explanatory. Let's move on to slide 15. In terms of growth drivers, we have emphasized it over again and again. It's all about confidence. We are actually seeing continued increase of confidence in Cambodian political and economic climate, as well as social orders. We always mention about political stability lead to economic prosperity. With the stable political and economic situation, we are seeing increase of tourism and visitation, particularly from China. That actually directly benefit the footfall, to our combined NagaWorld complex. Of course, on top of the macro perspective, there are also increased confidence towards the company, especially post-commencement operation of Naga2, which is a transformational product.
With today, market cap of over $4.6 billion, and shareholders funds of $1.4 billion, coupled with our successful bond offering, $300 million bond offering, in May, I think we have successfully increased the confidence from VIP players, as well as junket operators, towards our companies. Combining the strong appeal on the Naga2 product offering, as well as our financial strength, we are able to attract top-tier, higher-end VIP players as well as junket operators. Despite the past success, and after the bond exercise, the current debt-to-EBITDA, it's around 0.8, but we continue to position ourselves, to maintain the debt level, to below two times of debt-to-EBITDA. Turning to slide 16. Again, this is a very interesting slide in the sense that it shows there is a strong correlation between Naga2 hotel occupancy as well as the mass gaming revenue.
What this information tells us is that the people, the customers who stay in Naga2, tend to have higher participation in terms of gaming activities. It actually tells us that Naga2 is very attractive and the preferred world-class gaming integrated resort in Cambodia. Turning to slide 17. The GDP growth has been growing at 6%-7% in the past years. Based on IMF World Economic Outlook, dated April 2018, Cambodia's GDP is expected to grow at 6.9% in 2018, as well as 6.8% in 2019. More importantly, if you look at the first bullet point, GDP per capita of Phnom Penh residents has increased from just a mere $769 in 2009 to $3,800 in 2017. Moving on to slide 18. We are continue seeing the increase of weekly flights, international weekly flights from the region, into Cambodia, namely Phnom Penh and Siem Reap.
If you look at today, we have 738 weekly flights. That it's a significant increase from just mere 386 weekly flights back in December 2013. Moving on to slide 19. In terms of foreign direct investment, China continues to contribute the bulk of Cambodia's foreign direct investment. In fact, China accounted for 51% of all foreign direct investment to Cambodia for the past three years. That actually leads to greater number of expat population, as well as higher spending and patronage to our properties. The subsequent slides show you guys some of our new product offering in the first half of 2018. Starting on with slide 21, this is our brand-new VIP gaming hall located on level 21 of our VIP tower. Slide 22 as well. Moving on to slide 23. This is our, again, brand-new presidential suite. Slide 24, presidential suite. 25 as well. 26.
27, it's our penthouse suite. 28. Slide 29, as I mentioned before, Suncity opened up their VIP hall, in March 2018, and they've been contributing significantly to our VIP rolling in the first half of 2018.
Slide 30, Huang Venus VIP hall that commenced operation in June 2018. In fact, we expect more significant results coming from Huang Venus in second half 2018. That concludes my presentation. I think we can open up for Q&A.
Thank you. We will now proceed to our question-and-answer session. Please feel free to raise any questions you may have. For all participants, if you wish to ask a question, please press star one on your telephone keypad. Should you wish to cancel your question, you may press star two. We'll pause for just a moment. Our first question will come from Charlie Gushee with Kyklos Capital.
Hi. Thank you very much for the rundown, congratulations on an excellent report. I just had a quick question. Now that the debt has been reduced in terms of its relationship to your EBITDA, does that point to new growth initiatives, or major growth initiatives over the next, say, 12-18 months? If so, can you give us some indication on scale and timeline on when we would expect new announcements and further initiatives? Thanks.
Hi, Charlie. Hi, it's Philip. I think maybe I misheard, our debt did not reduce. We talk about first debt, which is bond offering of about $300 million in May of this year. What we meant from the slide is that, on a trailing 12-month basis, our debt-to-EBITDA ratio is 0.8 times. Whereas our committed policy at the point of time when we issued the bond is at two times. That demonstrates that if there is a need, we can go further into the debt market if needed. Of course, we will not issue any debt unless we have very strong reasons for the utilization of the proceeds. As far as expansion, as you mentioned, within the next 12-18 months.
If you look at the numbers that we have generated for the first half of this year, and also in terms of occupancy and capacity of Naga 2 and Naga 1, we foresee that we'll be running short of capacity in the next couple of years or so. We are already planning for Naga 3, but it's still very much in the early stage, and we will make the necessary announcements when the time is right for us to do so. Yes, we are indeed planning for the expansion. That could possibly be three to four years down the line before it opens. Thank you.
Our next question will come from Chelsea Cohen with Egan. Please go ahead. Chelsea, your line is open.
Hi, thank you for the call. My first question is just related to the junket operators. I know it was your plan to expand the number of junkets, and it looks like you have. Could you provide a little bit more color on the contribution, and the number of junkets that you have for Naga? Secondly, can you also elaborate a little more on the EGM assignment rights decision, and what the outlook is going forward on that?
I think let me first address the EGM assignment rights. As mentioned, if you look at slide 10, we are seeing a very fast ramp-up in terms of the win per unit per day on those EGM located in Naga 2. I think the assignment rights decision, it remains an option of the company, but I think there's no rush after witnessing the fast ramp-up of the win per unit per day of the EGM in Naga 2. With regard to junket expansion, right now we think we have a quite good balance of junket operators operating.
out of Southeast Asia as well as East Asia, namely targeting the Chinese market. We are looking at signing on a couple more. These will be top-tier junket operators out of Macau. We should see increasing numbers of these operators in the second half of this year. As to the identity and number of these operators, we will talk about it when it actually happens. We don't want to talk about something too far in the future. Our focus is on getting the operators in who can really deliver numbers, like what we experienced for Suncity Group. I think it's public knowledge, Suncity Group themselves have made some sort of press release that their hall in Naga 2, they actually achieve a rolling in excess of $1 billion in one month. We have seen even further improvement to that.
We're quite happy with that performance, and our position is that we will look for more operators of quality of this nature. The next six months, you should expect to see us signing on a couple more of them. Thank you.
Once again, please press star one on your telephone keypad to ask a question and star two to cancel. We'll go next to Charles Cartledge with Sloane Robinson.
Hi, Philip. Congratulations on the excellent result. A couple of questions for me. You raised the $300 million bond in May, the reason for raising the bond was explicitly to help your VIP business. May, I can't remember what date in May you raised the money, but perhaps you could comment on within this very strong second quarter for VIP, to what extent does that reflect the capital that you raised in the bond? Given that it would have fallen into the second half of the quarter, what impact do you expect it to have in the future given your conversations with junket and high rollers? Thank you.
Charles, thanks for the question. The $300 million bond that we raised in May was for two purpose. One, the first purpose is $150 million, to refurbish Naga1. As Sean pointed out in his presentation just now, the disparity in terms of win per table per day on Naga1 and Naga2, where in a mere six months, the win per table per day for Naga2 outstrips Naga1 win per table per day, despite having been open for so many years. I think it reflects the quality of Naga1 needs to be upgraded in order for us to derive more gaming revenue from that property. $150 million allocated for the refurbishment of Naga1. That program has started and will be complete by end of next year.
The other $150 million, as you pointed out, has been earmarked for the VIP business. It's not to fund the VIP business. It's meant to be kept on the books as a demonstration of our ability to take on the big players and big operators. The effect of that $150 million that we raised for the VIP, has not really very much flowed through into our first half results, given the timing of that issue. Now in talking with new operators, the top tier operators out of Macau, with the backing of that financial strength of about in excess of $300 million cash on our balance sheet, it makes things easier. It also allows our operators to penetrate the market further. We already have got the quality of the product in Naga2, and now they've got the software, and also the firing power.
We are confident that in the second half of this year, that we expect to be able to achieve that continued trajectory on the VIP side. Keeping our fingers crossed. Thank you.
Thank you. Could I just ask a follow-up? You mentioned, as Sean mentioned, the refurbishment program in Naga1. Could you just elaborate on, is that just the rooms, or is it the gaming floor? On either of those, you'll have to obviously close part of the gaming floor while you refurb it. Will that be done on a rolling basis, or how do you intend to do that so as not to impact the current business there? Secondly, I haven't worked the numbers, but we can see the difference in the roll or the win per day per table. I'm wondering what an approximate payback might be.
Charles, the refurbishment of Naga 1 will be the hotel rooms plus our common and public areas. That's where the $150 million will go. The refurbishment program also will be done in stages so as not to interrupt our operations. You will appreciate, I mean, that we have opened Naga 1 for so many years already, but given the volume of business that we've been doing over the years, we have not had the opportunity to really do any major refurbishment. Now with Naga 2 on the books, we are able now to do a scheduled refurbishment of Naga 1. That program will take us to towards the end of next year, and it will be done in stages so as not to affect our operations. As to the effect on the win per table, we have our internal projections, expectations.
Of course, we don't give any forward numbers. The objective of that refurbishment is definitely to bring in the quality players to Naga 1. We have always positioned Naga 1 to be our flagship property, given the size of the rooms. The room sizes in Naga 1 is about 38 sq m per room versus only about 27 sq m in Naga 2. We definitely want to bring Naga 1 back to the level where it's our flagship property. Thank you.
Thank you.
Once again, please press star 1 on your telephone keypad to ask a question and star 2 to cancel. We'll go next to Sarah Hartshorn with Rainbow Fund.
My question was, what are your CapEx requirements over the next three years? I understand the $150 million to refurbish Naga 1, but could you discuss Russia and where those monies will be coming from?
All right. Thanks, Sarah. You're right. Our major CapEx cost will be $150 million for Naga 1. On an annual basis, our maintaining CapEx comes in about $30 million to $40 million a year. For Russia, the way we structured our Russian development is that it's been, in a sense, ring-fenced. That the development cost is funded by the contractor, and we have an obligation to pay the contractor or an option to pay the contractor seven years from the start of construction. The start of construction was about a year ago or a year and a half ago. We have something until 2023 to fully pay back the $300 million expected development cost of the Vladivostok project. That is expected to come up from the operations of the Vladivostok property itself.
Really, CapEx cash requirements out of Naga existing operations is zero for the Russian operations. It's mostly CapEx requirements within Cambodia itself.
Okay.
Thank you.
Thank you. Do you mind mentioning who the contractor is for the Russian property?
Yeah. The contractor is a Chinese contractor, he's been our contractor for many, many years in Cambodia. Because of that, we've been able to work out this development funding from him.
Okay. I appreciate your comments.
Thank you.
Thank you.
Once again, please press star one on your telephone keypad to ask a question and star two to cancel. We'll pause for just a moment. We'll take a follow-up question from Charles Cartledge with Sloane Robinson.
Hi, Philip. It's obviously very good to see the rebound in margin at the EGM, the mass market EGM. Could you just share with us some commentary around that? You went from 7.7% to 8.1%. I don't have my spreadsheet in front of me, but it used to be, I think, 10%, and it's been coming down for two years. I believe part of the reason has been that you'd had some EGMs on the floor which were not fully under your control because you'd sold the rights to those EGMs, and that had a deterioration in mix and maybe some EGMs are competing with other EGMs. Maybe you could share with us what happened and what changed. Thanks.
Charles, because you've been with us for so long, you're right, absolutely. That our win rate on the EGMs used to be about 10%. Really, it's because of the change in mix of machines. Not to do with the assignment of rights or the percentage given to the operator, because that win rate is at the gross level. Really, the mix of machines did contribute. You see, for our EGMs, electronic gaming machines, there are 2 types. One, which is the traditional slots, and the other, which is the Electronic Table Games, the ETGs. On the traditional slots, you're able to set the Return to Player. You set a certain percentage, and you get a theoretical win rate from there. Whereas on the ETGs, it's like a table game.
The win rate is significantly lower, like a baccarat table, where the win rate is about 2.3. It's a matter of the blend of the machines and the volume of play, whether it's on the traditional slots or the ETGs. Over the past couple of years or so, we've seen more preference towards the ETGs, and we have also opened more ETGs relative to the slots. What we have done over the past one year or so is that we have started moving up the Return to Player on the slot machines. Because of this, we are seeing the marginal creep up of the win rates. That is still very much our target, to move that up even higher than existing 8.1%. Let's see how it goes in the second half of this year. We are definitely moving that up progressively.
I see. Just a follow-up, rather than go back in the queue. I'm reading some sell side notes that there's evidentially no decision on tax rate yet. Could you give us an update on your latest, what you're hearing? One analyst wrote that it's due before the year ends 2018. Is that correct? What are you hearing? Thank you.
Hi, Charles. It's Sean here. I think looking at the forthcoming general election on 29th of July, after the election, it's going to take at least about two months to form the government. I think from our perspective, we think that conservatively, we are expecting the passing of laws perhaps the first half of 2019. That's from our personal opinion and what we have observed so far. Thank you.
As to the rate, I believe there was some sort of committee and indications had been that it might be in the mid-single digit. Is that still the case? Is it still a committee? Might it still be a committee after the election, and might it still be mid-single digits?
Yes, I think, Charles, this is within our expectation. I think it's roughly around single digit of GGR. Yes, that's right.
When you say roughly around single digit, is that mid-single digit, or could it be higher than that?
Mid-single digit. Sorry.
Okay.
A blended mid-single digit. Yes. Thank you.
Thank you.
Our next question comes from Xiying Zhaoyou with Everbright.
Hi, management. Thanks for taking my question. Congratulations for another very successful quarter. My question is, how is China's contribution to the visitations and rolling or GGR? Could you please give us some color on that?
Hi, it's Sean here. I think, in terms of head count, first half this year, in the perspective of VIP segment, Chinese contribution, it's around 38%, based on head count. From the mass market side, it's pretty hard for us to quantify that. The VIP numbers is what we can provide.
Okay, thanks.
There appears to be no further questions at this time. This concludes today's conference call. On behalf of NagaCorp, we would like to thank you all for your participation in the call. All lines may now disconnect. Thank you.