- »Donaco Dumps Junkets and Makes Profits
Donaco Dumps Junkets and Makes Profits
When Donaco closed its financial year and released its 2018-2019 numbers at the end of September, revenue was down across the board and losses were significant.
Recent moves, however, may have successfully turned the tables for the leisure and entertainment business. By dumping unprofitable junkets and putting new management in charge, Donaco seems to be on the road to recovery.
Closing Out a Tough Year
Donaco’s financial year ended on June 30, 2019, and it released its results three months later. The bottom line wasn’t good.
Revenue was down to $86.3 million, a notable decrease from $92.6 million the previous year. Star’s net gaming revenue was down nearly 10%, Aristo down 15%, and net slot machine revenue overall had declined by 24.5%. The comprehensive loss for the company was at $174.4 million, up significantly from the $110.6 million reported the year before.
The New South Wales-based company operates casino/resorts in the Asia Pacific region. Its primary business is the Star Vegas Resort & Club in Cambodia, with Aristo International Hotel also a priority in Vietnam.
Star Vegas had been a particular problem since Donaco acquired the property in 2015. The Lim brothers, who founded and previously ran Donaco, purchased the casino from a Thai politician. That politician went on to build competing businesses near Star Vegas.
All of it placed Donaco in the middle of a contentious court battle. It sued the politician for A$276.5 million. Somboon Sukjaroenkraisri sued back for defamation and to overturn the land lease for Star Vegas.
Donaco lost the first round of the case but is in the appeals process.
Forecasting a Better Year
Along with the financials, Chairman Stuart McGregor admitted the “challenging year” with quite a few issues. But he also noted positive moves that would take the company on a new path.
McGregor touted great confidence in newly-hired CEO Paul Arbuckle, a stronger board of directors with more gaming experience, and plans to expedite the court proceedings for Star Vegas.
Earlier in 2019, Joey Lim was ousted as Donaco CEO. His brother, Ben Kim Keong Hoe was removed from the board months later. Both brothers were out of the company after missing loan payments on Star Vegas and avoiding other responsibilities.
One of the moves made to strengthen Donaco’s bottom line was to rid itself of “unprofitable” junkets catering to Star Vegas. And as of September 2019, the numbers were already improving. VIP turnover declined, and net revenue increased.
According to the September company update, the new management team at Star Vegas “began rationalizing the VIP junket arrangements, with a focus on eliminating poor quality business practices and improving margins.”
The company also felt good about releasing some junkets due to a rise in members of Chinese crime syndicates infiltrating them in 2018.
Such decisions could have also been impacted by Crown Resorts’ decision to cut ties with its most popular junket, Suncity Group.
Not only has Crown been targeted for numerous investigations due to reporting of ties to criminal syndicates and trafficking, Suncity is also under investigation in Australia for its similar connections. The junket recently closed its high roller room in Sydney and scaled back operations drastically.
Share Profits Soar
After Donaco showed significant improvements in its quarter results for the period ending on the last day of September 2019, share prices responded positively.
By October 18, the share price for DNA on the Australian Securities Exchange shot up 20%.
The market was pleased about the quarterly revenue increase of 42% to $24.25 million. The positive response also stemmed from a significant cost reduction from $1.92 million to $1.55 million year-on-year and more impressive profit increase from $1.76 million to $3.81 million.
The upward move was a relief for Donaco executives. They had seen nothing but an 80% downward trend since October 2016. The company hopes the upswing will continue and the share price will rebound over time, whether in spurts or slowly but steadily.
Speculation and Trends
There has been some talk of insiders trading shares at a particularly low point.
Keong Lim’s sale of A$4.8 million in shares was no surprise when done at $0.14 per share. But insiders at Donaco have purchased 13,219,413 shares worth A$1.5 million over the past year. This implies that insiders feel that Donaco has been fully valued.
Insider buying should outweigh share selling. But that could still happen as the company emerges from its troubles and shows a smoother path with higher revenues.
On October 17, the price was $0.065, but it began its climb in the days that followed. It went up to $0.083 on October 18 and to $0.089 on October 24.
If the trend continues, shares have the potential to inch back toward the 52-week high of $0.195.