Donaco International Limited

DNA Details

Trading Update for Q1FY22: Donaco International Limited (ASX: DNA) operates casino and hotel businesses in Cambodia and Northern Vietnam.

• DNA reduced cash burn from ~$0.7 million per month (pm) in Q1FY21 to ~$0.4 million pm in Q1FY22 within its targeted range and due to exercised cost control.
• The Group registered revenue of ~$0.76 million in Q1FY22 versus ~$0.33 million for Q1FY20 due to limited casino operations. Though Star Vegas casino in Cambodia is still temporarily closed, Aristo casino in Vietnam is being operated on a limited basis due to COVID-19 restrictions.
• DNA voluntarily reduced its Mega Bank Facility balance to ~$5.27 million as of 30 September 2021 and is on track to make final debt repayment in December 2021.
• The company held ~$5.17 million cash & cash equivalents as of 30 September 2021.

Revenue & Net Income Trend from FY15-FY21; (Analysis by Kalkine Group)

Key Risks: The company faces COVID-19 lockdowns and stringent protocols for casino operations, and reduced visitation. It risks procuring adequate funds for working capital and maintenance.

Outlook:

• The company plans to repay the remaining debt instalment (~US $1.8 million) in December 2021 quarter.
• DNA plans to keep a tight cost control and a robust balance sheet in FY22 and develop clientele from the local region.
• Overall, the regulatory conditions are relaxing with the Cambodian Government’s reopening of e-visa applications for overseas travellers. As the vaccination rates in Southeast Asia are reported to increase, the Governments are planning to ease down travel restrictions in the December 2021 quarter.

Stock Recommendation: The stock of DNA gave a positive return of ~2.56% in the past three months and a positive return of ~33.33% in the past year. The stock is currently trading lower than the 52-weeks’ average price level band of $0.029 - $0.092. On a TTM basis, the stock of DNA is trading at a price to book value multiple of 0.3x lower than the industry (Hotels & Entertainment Services) median of 2.4x, thus seems undervalued. Considering the current trading levels, reduced debt levels, improved top line, relaxed regulations, and favourable macro environment, continued prudent cost control focus, valuation on a TTM basis, and associated business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.038, as of 3 November 2021, 10:40 AM (GMT+10), Sydney, Eastern Australia.

DNA Daily Technical Chart, Data Source: REFINITIV  

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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