Donaco International Ltd

DNA Details

Donaco International Ltd. (ASX: DNA) provides leisure and entertainment services with Casinos operated across the Asia Pacific region. It operates through three segments, namely, Casino operations-Vietnam, Casino operations-Cambodia and Corporate operations. DNA was listed on ASX in December 2004.

Lockdown Restrictions Affecting Casino Operations: The company’s Star Vegas casino in Cambodia was impacted by increasing virus spread and has been temporarily closed since April 2021. In addition, the company has been operating its Aristo casino in Vietnam on a limited basis since May 2020. However, the reopening plans by Cambodia following the resumption of e-visa application for international travellers to Cambodia to positively drive the Star Vegas operations.  

DNA realized net revenues of AUD 0.76 million in Q1FY22 as compared to AUD 0.33 million in Q1FY21, mainly led by its Vietnam operations. Due to stringent cost control, losses at group-level EBITDA narrowed to AUD 1.04 million in Q1FY22 as compared to a loss of AUD 2.72 million in PcP.

Funding Arrangement: DNA continues to deleverage its balance sheet. It had brought down the debt facility availed from Mega Bank to AUD 5.27 million as of September 30, 2021, from AUD 6.8 million as of June 30, 2021. It had closed the period with a cash balance of AUD 5.17 million as of September 30, 2021.

A Quick Look at FY21 Results: DNA posted weak FY21 results owing to lockdown restrictions, but management is optimistic on long-term business outlook with a surge in vaccination rates globally. 

• Revenue reached AUD 10.3 million in FY21, down from AUD 53.5 million in FY20. This was due to the fact that its Star Vegas casino operated for seven months during the year.
• It had posted an EBITDA loss of AUD 0.1 million in contrast to a positive EBITDA of 10.3 million in PcP. The impact of closure was marginally mitigated by initiatives like the launch of retail outlets, reorganization arrangements with junket operators, disciplined cost management.
• It had posted a statutory net profit of AUD 25.2 million as compared to the loss of AUD 59.0 million in the previous year primarily due to non-competition settlement in relation to Star Vegas to the tune of AUD 50.9 million realized in FY21.

Statutory NPAT Trend (Source: Analysis by Kalkine Group)

Key Risks: Rising daily caseloads on account of the new virus variant may lead to border closures and mobility restrictions which may hurt casino operations. Changing consumer preferences and rising unemployment rates may restrict discretionary spending, which invariably affects vacancy rates at casinos. Monetary policy tightening on account of rising inflation may inflate borrowing costs and affect expansion plans.

Outlook: The announcement by the Thailand government on quarantine-free entry and departure for vaccinated people to and from selected countries from next month is likely to lift the visitation at the company’s Star Vegas operations. DNA is on track to pay the final instalment of US$1.8 million under the Mega Bank debt facility by December 31, 2021. 

Stock Recommendation: Over the last six months, the stock has been corrected by ~19.15% and is trading below the average of the 52-week low-high band of $0.033-0.092. On a TTM basis, the stock of DNA is valued at 6.1x on EV/Sales multiple as compared to the industry average of 6.4x (Hotels & Entertainment Services), implying accumulation opportunity at current levels. Considering the re-opening plans announced by the Thailand government, rising vacancy rates across the globe, improved Q1FY22 results, deleveraging efforts, valuation on a TTM basis, and key risks associated with the business, we give a “Speculative Buy” rating on the stock at the current market price of $0.036, as on 14 December 2021, 11.30 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

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