Iao Kun Group Holding Co Ltd fka IKGH

[realfast95]

Analyst report posted

Asia Entertainment & Resources Ltd.
HK Listing soon; Top-line improvements now; Lowering ests
due to offering dilution; Lowering target price
Our Call
We maintain our Buy rating and adjust estimates following the completion
of AERL’s rights offering, which transforms a ~$60m shareholder loan into
permanent capital. Shareholder loans are not allowed under the Listing Rules of
the Stock Exchange of Hong Kong (“SEHK”), and AERL’s upcoming HK listing
should unlock equity value for investors.
Rights offering. Management/insiders (“management”) purchased ~$14.9m of
stock at $4.50 and $19.3m at $3.00. Investors purchased $29.3m of stock at $3.00.
We believe management’s “backstop,” purchasing 54% of the transaction at a
17% blended premium with a 24-month lock-up demonstrates their realization
of AERL’s undervalued equity ahead of its HK Listing, as well as its long-term
commitment and confidence in its business.
HK Listing. The Listing should be completed before the end of this year
(prospectus near finalized) and be by Introduction with no new shares offered.
A dual-listing decision was driven by overtures from Asian-based institutional
investors, combined with management/BOD frustration over its US market equity
multiple. AERL has engaged one of the largest i-banks in Mainland China to
structure its Listing roadshow throughout Asia, as well as a top 10 audit firm.
Business improvements started – more to come into HK listing. July rolling
chip turnover (“RCT”) was ~+15% YoY, AERL’s first double digit % YoY
increase since May CY12. July results compared to Macau market-wide RCT of ~
+12% YoY. We expect the full impact of AERL’s Le Royal Arc room acquisition
in August/September as it completes credit checks on new agents before extending
them significant cage capital. Management’s latest outlook for China macro is fluid
but with a positive bias and we expect it to more aggressively utilize its ~$40m in
idle capital in coming months.
Earnings adjustments and valuation. 1Q13 results, 19.5m additional shares
outstanding from the offering and new assumptions for higher agent commission
costs lowers our CY13/CY14 EPS to $0.91/$0.95 from $1.42/$1.93. We initiate
CY15 EPS at $1.14. Assumptions do not include any table/room expansion,
which we believe is likely. We believe estimate reductions are expected following
dilution from its right's transaction and 1Q13 agent commission increases.
We lower our target price to $9.50 from $16, 10x our new CY14 EPS. We consider
our new target as conservative, although it still represents a ~140% gain from
yesterday’s close. Shares trade for 4.1x CY14E EPS and 2.6x gross FCF per share.
Greater detail of all the above is continued on the following pages.

http://files.shareholder.com/downloads/ABEA-5LCMIQ/2570273672x0x685405/6FE23109-5A23-45E9-90CC-2A60E130ED2E/2013-08-16_AERL_Sterne_Agee_HK_Listing_soon_Top-line_improvements_now_Lowering_ests_due_to_offering_dilution_Lowering_target_price_anaylst.pdf

http://ir.aerlf.com/analystreports.cfm