Donaco International Limited, an ASX-listed company, has recently reported mixed financial results for the June 2024 quarter, with significant concerns about potential impacts from regulatory changes in Thailand and a tax audit in Vietnam.
Financial Performance Overview
For the June 2024 quarter, Donaco International Limited experienced a notable year-on-year revenue increase of 57%, reaching AU$10.8 million (US$7.08 million). However, sequentially, revenue fell by 15%. The group’s EBITDA also showed a decline, dropping 24% from the March quarter to AU$6.34 million (US$4.15 million).
Revenue Trends
The increase in year-on-year revenue signifies a strong recovery post-COVID-19. However, the sequential decline highlights some underlying issues. Donaco’s revenue growth is attributed to increased visitation and operational stability, but recent developments have overshadowed this positive trend.
EBITDA
The drop in EBITDA, despite higher revenues, suggests rising operational costs or changes in revenue mix that are affecting profitability. The company’s EBITDA was notably impacted by the performance of its VIP gaming segment.
Thai Casino Legalization Threat
A key concern for Donaco is the potential legalization of casinos in Thailand. The Thai government has recently voted to explore the possibility of allowing casinos within large entertainment complexes. This study, which will be reviewed by the Cabinet, could significantly impact Donaco’s Star Vegas casino in Cambodia.
Potential Impact on Star Vegas
Star Vegas, located in Poipet near the Thai border, could face stiff competition if Thailand legalizes casinos. The cross-border tourism that currently benefits Donaco’s operations might diminish, affecting visitation and revenue at Star Vegas.
Strategic Response
Donaco is actively assessing the potential effects of this development. The company’s management is concerned about how a legal casino market in Thailand might influence their business strategy and financial stability. They are preparing to navigate this potential disruption by evaluating various strategic options.
Tax Audit Issues in Vietnam
In addition to regulatory concerns in Thailand, Donaco is dealing with a potentially costly tax issue in Vietnam. The Vietnam General Department of Taxation has audited Aristo International Hotel, Donaco’s Vietnamese operation, and determined that unredeemed chips should be considered revenue.
Financial Implications
This audit result could lead to a substantial tax liability of approximately US$5.9 million for Donaco. The company is contesting this decision and has engaged a local consultant to appeal the tax assessment. The outcome of this appeal is yet to be determined.
Impact on Aristo
The tax audit and the resulting financial strain have impacted Aristo’s profitability. Increased operational costs and the potential tax payment could affect the hotel’s performance and financial stability in the short term. Despite this, Aristo has shown high visitation levels, which might support its long-term potential.
Star Vegas
Star Vegas’s performance was primarily influenced by a significant decrease in VIP gaming turnover, which nearly halved during the quarter. Despite this, the casino benefited from an unusually high VIP win rate of 10.82%, which somewhat offset the decline in turnover.
The high VIP win rate is an anomaly and might not be sustainable in the long term. The company’s management has focused on stabilizing operations and reducing expenses to mitigate the impact of decreased VIP gaming turnover.
Aristo
Aristo experienced stable visitation and an increase in net revenue during the quarter. However, the hotel faced higher operating expenses, which negatively impacted its property-level EBITDA. The opening of the new Sapa airport in 2025 is anticipated to boost Aristo’s performance in the long run, as it is expected to enhance connectivity and attract more visitors.
Management’s Strategic Focus
Donaco’s Non-Executive Chairman, Porntat Amatavivadhana, emphasized the company’s commitment to providing a high-quality customer experience and stabilizing operations. The company’s strategy includes minimizing operating expenses and improving visitation rates across its properties.
Operational Stability
Donaco has reported a stabilization in operations and a focus on customer experience. Both Star Vegas and Aristo have shown signs of stabilization, with improved visitation rates and property-level revenue figures. The company is working to maintain this stability despite external challenges.
Future Outlook
Looking ahead, Donaco is preparing to navigate the evolving landscape of the Southeast Asian gaming industry. The company’s strategy includes adapting to potential regulatory changes and addressing financial challenges to ensure long-term growth and profitability.
Donaco International Limited’s recent financial results reflect a period of strong recovery from the COVID-19 pandemic, tempered by significant challenges. The potential legalization of casinos in Thailand and the tax audit in Vietnam present considerable headwinds for the company. However, Donaco is actively addressing these issues through strategic assessments and operational adjustments.