Replies to post #91760 on China Growth Stocks

[Honolulu Trader]

Sorry viking86

That link is/was news that just came out.I thought it was
news worthy and still do.Actions like this should be seen.One thing is for sure,all positive news will be posted here w/o any complaints being made.I will try not to be repetitive but a certain
poster here makes that tough.Hope you're enjoying this long weekend.

[viking86]

AERL: this is my second post today about this stock and its purpose is to illustrate with a simple (mathematically slightly incorrect but close enough) calculation the ROI of AERL's basic business model of reinvesting every dollar back into the "cage'". This will show why Mgmt has been very reluctant so far to putting cash to work in any other manner like buying back their stock or buying out a competitor using cash reserves.

- based on a historical monthly average turn (or velocity) of 7x, every dollar that goes back into the cage (cage capital or CC) will result in a Rolling Chip Turnover (RCT) amount of $7 at the end of the month.

-the net profit from this RCT based on the previous fixed-commission model is approx 0.375% x RCT.

- so a dollar reinvested at the beginning of a month will thus result in an average profit of $7 x 0.375% = $0.02625, or a 2.63% return at the end of the month. Multiply that by 12x, you get a runrate annual profit of 31.5%. The correct annual profit, mathematically, is 1.02625 to the 11th power= 33% b/c the compounding effect of the monthly profit reinvested.

With the new renumeration model (revshare instead of fixed commission with the benefits of higher-margin side wagerings which have become increasingly popular at VIP tables), the net profit could be higher, about 0.4% x RCT instead of 0.375%. This would result in an annual ROI of 33.6% using the runrate calculation or 35.5% using the compounded method.

It should be noted that the ROI will in reality be reduced by the dividend payment of 15% of net profit .If we take that into account, the resulting annual ROI will still be high enough, 35.5% x 0.85 = 30%. With this simple calculation, it's not hard to see why Mgmt would rather put every dollar earning back into the cage and increase RCT in a compounded way. Especially since they can use the thus increased RCT to negotiate a higher interest-free loan (LOC) or even a new more profitable VIP room with the same or with a new casino, allowing them to further increase their CC and hence the RCT. fwiw