On Monday shares of Entertainment Gaming Asia Inc. (AMEX: EGT) climbed to a 52-week high of 0.65 before closing the day at 0.62 on trading volume that exceeded 2.3 million. It was an impressive spike for EGT given the fact that electronic gaming machines provider was coming off a relatively flat week in which shares held around the 0.47 – 0.53 range with trading volume averaging under 300,000 during the five-day span.
With shares currently at 0.62 EGT is well above their 50-day moving average of 0.37 as well as their 200-day moving average of 0.30, and with new projects now in the works and a strong fiscal 2011 now in the books those shares could be poised to climb even higher. Perhaps most impressive to shareholders has been EGT’s ability to bounce back from a slow start to 2012 when they hit a 52-week low of 0.22 on January 19, 2012. EGT spent nearly two months hanging around the 0.25 – 0.35 range before shares bounced above the 0.40 mark in mid March, eventually climbing to 0.65 before a pullback brought those shares down around the 0.44 – 0.52 range.
What’s encouraging for shareholders is the fact that EGT managed to halt the slide before shares went too far south and now it appears as if they are building some momentum that could elevate that share price to new highs in the coming days.
Those highs could come as investors take notice of the activity in which EGT is now engaged, namely the recently announced Machines Operation and Participation Agreement they reached with a Cambodian company which owns an existing casino in Poipet, Cambodia near the Thailand border and a Cambodian individual who is the controller of that casino operating company and owner of two parcels of land on which the casino is located.
That agreement was entered into by EGT’s wholly-owned subsidiary Elixir Gaming Technologies (Cambodia) Co., Limited and as part of that deal the Local Partner has agreed to allocate part of the land for EGT to develop and construct, at their own design, budget and cost, a slot venue capable of placing and operating approximately 300 electronic gaming machines therein.
This move represents a new step for EGT as it will provide them with the exclusive rights to operate and manage the venue and the machines placed therein under their “Dreamworld” brand. As part of this deal EGT will share the win per unit per day from all the machines placed at the new slot hall with the local partner and certain operating costs related to marketing and floor staff at a 40% / 60% split, respectively.
It should be noted that during the initial five-year term of the agreement EGT will hold exclusive rights to place and operate machines in the EGT Slot Hall and if the total gross revenue (before deduction of certain joint expenses and revenue sharing) generated by the machines at the EGT Slot Hall (the “Gross Win”) during the last year of the Initial Term is equal to or more than $8 million or if the total accumulated Gross Win for the last three years of the Initial Term equals or exceeds $20 million, then they will continue to enjoy the same exclusive rights during the Renewal Term.
As pointed out by EGT the location of the casino is ideal for growth as it sits within Cambodia’s Economic Free Zone and is considered an important trade route connecting Bangkok and Phnom Penh. There are currently eight existing casinos in Poipet and with limited real estate available for future gaming development EGT has a real opportunity to capitalize on a growing gaming industry. Making this easier is the fact the EGT Slot Hall will be constructed as an extension of the existing casino owned and will connect to the main casino’s table game floor; this ensures they will be able to operate under the casino owner’s gaming license.
While this slot hall is expected to open in December 2012 EGT has a more immediate opportunity for revenue growth just around the corner as they continue to prepare for the opening of Sokha Hotels and Resorts new casino resort in a tourist area of the Kampot Province. The first phase of the casino resort is expected to open in May 2012 and EGT will initially place 200 electronic gaming machines seats at the time of the opening and will ramp up to 250 seats over the subsequent several months.
EGT is in a strong position for expansion thanks in large part to their impressive growth in 2011. According to their most recent quarterly report EGT’s consolidated revenue for the year ended December 31, 2011 was approximately $27.1 million, up from $22.2 million in 2010. Revenue from their gaming operations for 2011 was approximately $17.4 million compared to $14.3 million in 2010 while gross margin for the gaming business jumped to 51% compared to 39% in the previous year.
As it stands EGT is deriving most of their revenue from their operations in Cambodia and while they have business in the Philippines the results have not been as positive. EGT stated in their quarterly report that they were “beginning to derive benefits from our strategic efforts to improve our operating performance and growth potential in this market. These efforts include: implementing, with the support of our venue owner partners, targeted marketing programs; the redeployment, when possible, of our gaming assets from lower to higher performing venues in the market; and greater overall revenue sharing in this market due to our acquisition of a higher revenue sharing interest in one of our most promising venues in October 2011.” While that may be true it seems obvious that their most immediate potential exists inside Cambodia and the surrounding areas.
EGT has managed to align themselves with the big players and what is so attractive about the company is their desire to eventually own and operate their own casinos which would obviously give them greater opportunities for revenue growth as they would not have to split earnings with partner casinos. One of the great things about EGT is they have the resources to fund their growth, something every investor likes to hear.
