Banyan Tree Holdings (BTH SP) - UOB Kay Hian 2018-01-11: Positive Progress On Casino Licence In Vietnam

BANYAN TREE HOLDINGS LIMITED B58.SI

Banyan Tree Holdings (BTH SP) - Positive Progress On Casino Licence In Vietnam

Vindicating our expectations in our initiate coverage report, Banyan Tree continues to grab headlines with progress in its application to operate a casino in its Vietnam development.
With the Vietnamese Prime Minister’s in-principle approval obtained, the development is on the cusp of fulfilling its full potential. With a 17.8% stake valued at S$48m, Banyan Tree is sitting on a potential multi-bagger.
Maintain BUY and SOTP-based target price of S$0.92.

At a working session with Thua Thein-Hue authorities, Vietnam’s Prime Minister, Mr Nguyen Xuan Phuc, agreed in principle to add casino operations to Laguna Lang Co. This comes after years of lobbying by Banyan Tree (BT) representatives to the local authorities.
The proposal comes with the support of different important ministries, such as the Ministry of Defence, Ministry of Planning and Investment, Ministry of Finance and Ministry of Culture, Sports and Tourism.

In early-17, the Vietnam government announced Decree No. 03/2017/ND-CP, effective Mar 17, which essentially gives existing casino operators and potential investors unprecedented access to Vietnam’s local gaming base for a trial period of three years, from the date the first casino operator successfully obtains a licence for Vietnamese gamblers. This is a sea-change from the previous operating environment where casino entry was strictly limited to foreigners and overseas Vietnamese.

The Laguna Lang Co project will serve 400,000 visitors and contribute US$245m annually to the local budget. A casino based in Laguna Lang Co will drive incremental tourist arrivals spurring greater infrastructure development and accessibility.
Positioned at the centre of this potential offering, we posit that ancillary infrastructure development and facilities will have to be directed around Banyan Tree’s development, increasing its project value over time.

Vietnamese in the midto-high income level is expected to double by 2020, increasing demand for high-class integrated resorts. With the new decree allowing access to the local populace, obtaining a casino licence will bolster demand for gaming and hospitality offerings.

Following the Prime Minister’s permission to increase Laguna Lang Co’s total investment capital from US$875m to US$2b, Banyan Tree will meet the eligibility requirement indicated in Vietnam’s Decree No. 03/2017/ND-CP to operate casino operations.

Banyan Tree’s application for casino operations comes after the Vietnam government’s newly minted decree to allow limited casino access to locals. While Laguna Lang Co has yet to receive a casino licence, we are upbeat on Banyan Tree’s progress.
Situated in the central region of Vietnam, Lang Co’s natural scenic beauty as well as exclusivity is a unique offering compared with other casino operators. A casino licence will likely spell a turnaround for Laguna Lang Co where it will finally fulfil its potential.

None. We await details from management pending the reception of a casino licence and detailed plans of the casino to be integrated into the existing development.
While positive, we note that the Laguna Lang Co development is part of the Banyan Tree Indochina Hospitality Fund in which Banyan Tree has an effective 17.8% stake. The accelerated phase of development and heightened capital requirement might call for a fresh round of capital injection.
With a myriad of options, there is a need to strike a balance between further straining its balance sheet and stake dilution in this potential multi-year growth story.

Reiterate BUY and SOTP-based target price of S$0.92.
We opine that Banyan Tree is only in the first innings of spectacular growth from its overture in achieving an asset-light model and leveraging strategic partners’ core competencies.

Edison Che UOB Kay Hian | Yeo Hai Wei UOB Kay Hian | http://research.uobkayhian.com/ 2018-01-11

UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 0.920 Same 0.920