Investment to herald casino resorts for Luster

by **Cals** Sun 24 May 2015, 17:22

Investment to herald casino resorts for Luster

Saturday, 23 May 2015

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Lim hopes to form a strategic partnership in the next few weeks.

PLASTICS manufacturer Luster Industries Bhd seeks to reap a decent two-digit return from its foray into the lottery business in Cambodia, its company officials say. The investment is also expected to be a springboard for its long-term plan to develop its own casinos and hotels in that country.
Managing director Lim See Chea tells StarBizWeek that the company is negotiating with a number of casino operators in the region and hopes to form a strategic partnership in the next few weeks.
In early May, Luster announced it was buying a 60% stake in Pan Cambodian Lottery Corp Ltd (PCLC) for US$4.2mil (RM14.96mil) from from Opal Deluxe Ltd. PCLC is a licensed digit number operator in Cambodia.
The vendor is giving Luster a profit guarantee of US$3mil for three years.
According to Luster deputy managing director Liang Wooi Gee, the investment will give it control over PCLC, dismissing market concern that it may not be able to do this being in a market like Cambodia.
Liang believes that Opal Deluxe will have the financial strength to honour its potential obligation given that it is a unit of Fragrant Prosperity Plc – a gaming, tourism and property development group listed on London’s GXG Market.
“The profit guarantee from the digit game is about 43% of the purchase consideration which work out to about 14% per year,” he says.
PCLC has committed a profit guarantee of US$500,000 (RM1.8mil) for the financial year ending Dec 31, 2015 (FY15), while in FY16, a profit after tax of US$1mil (RM3.62mil). As for FY17, it is US$1.5mil (RM5.42mil).
While on the surface, Luster’s entry into PCLC seems attractive given that it is valued around earnings multiple of 7 times for a controlling stake, some analysts say the latter will have to grow its profit after tax for FY15 by over 30 times to hit the numbers close to the profit guarantee it has committed.
For financial year ended Dec 31, 2014, PCLC’s net profit stood at US$26,312.
These concerns have perhaps weighed on Luster’s shares which have remained lacklutre since news on its diversification. At 9.5 sen, the stock has a market capitalisation of RM160.9mil.
Shot in the arm
Going by Luster’s profitability from its current manufacturing business, it does seem that the company could do with a shot in the arm. For financial year ended Dec 31, 2014, it made a profit of RM1.91mil on a turnover of RM101.58mil.
PCLC was set up in 2011 and operates the 5D, 4D and 1+3D digit game. The company has three draws a week, namely on Monday, Wednesday and Friday. It has 400 mobile agents and outlets now.
According to Lim, PCLC not only owns the licence to operate lottery business, but is also approved to operate a casino and online casino.
He says Luster aims to become a major player in the gaming and leisure industry. Besides the casino business, it also hopes to operate an integrated resort, which consists of hotel, theme park and duty free shopping mall. For this, location is important and it has been looking out for land to buy at the borders of Cambodia with Thailand and Vietnam.
For the short term however the immediate strategy is to expand the existing lottery businesses beyond Phnom Penh in Cambodia. Lim says the company is in talks with the local petrol kiosks and convenience stores (in Cambodia) in the hope to sell their lottery tickets there.
On why Luster has diversified into gaming, Lim says that it is a lucrative industry, which has huge growth potential in the region.
“Cambodia is growing rapidly at the rate of around 7% in the last three years and has political stability contrary to perception that it is under develop and not safe for foreigners to visit.”
According to Lim, the Cambodian government’s policies are receptive to gaming operations, which is one of the reasons why it has decided to venture there.
Viable venture
He believes that the venture is a viable one as the country has a “high punters population” as more than 96% of the total population of 16 million are legally allowed to buy lottery but not allowed to gamble in a casino. Only about 4% of its population is Muslims, who are not able to gamble.
The kingdom also has a low tax rate. Lottery companies only need to pay 10% tax on sales and need not pay corporate gain tax. It also has reasonable payout rate as the prize payout under the regulations is 50%, which is much lower than 64% in Malaysia, Lim adds.
Currently the gaming industry in Cambodia contributes some US$20mil (RM71.22mil) to its government. – By Gurmeet Kaur