Gaga over Naga

Quick note on the drop in shares of a casino stock we follow

By Travis Johnson, Stock Gumshoe, April 3, 2012

You may have noticed, but since news about Hong Kong-listed stocks doesn’t often trickle to the top of the Yahoo Finance feed I thought I’d post it here to make sure: Shares of Nagacorp, which was an “Idea of the Month” pick a long time ago and which has performed extremely well over the past year, fell dramatically today.

The reason was simple: Nagacorp is controlled by Chen Lip Keong, a Malaysian tycoon who owns more than 60% of the company, and he’s taking advantage of this runup in the shares to sell a substantial portion of his holdings, which amounts to about 10% of the company. In order to make the sale, he’s having his banker run it at more than a 10% discount, so the market price of the shares has come down considerably to reflect that new, inexpensive supply at around HK$3 (the stock peaked near $4 on good earnings not long ago).

Keong will still control the company, and they’re still in a transition phase where they appear to be planning substantial expansion to their NagaWorld casino complex, so the operations probably won’t change much — but nor will the fact that outside investors have little to no influence over the operations. The casino has been managed very well, I think, with an unusual amount of flexibility in how they strategically extract cash from visitors, but I think this increases the risk profile a bit. With Keong selling some of his shares and the potential for big corporate expenses if and when they expand on the neighboring projects as they’ve intimated, it’s certainly possible that the dividend — one reason for holding the shares, with an above-average yield — could be in some danger.

Just something to think about if you happen to hold the shares, or if you consider the drop in price to be a buying opportunity — it’s also arguably a long-term positive in some ways, since it will increase the public shareholding and the trading float of shares. I don’t think Keong has been particularly forthcoming about his plans, but it’s possible that I’ve missed any commentary he has shared recently.

Here’s the quick note on the deal from a HK newspaper last night.

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