KUALA LUMPUR (May 5): Luster Industries Bhd which had on Friday announced it is venturing into the Cambodian gaming and lottery market, plans to initially expand its lottery outlets in Phnom Penh, Cambodia in the first year, before subsequently looking into other provinces there.

“We are (also) looking at the borders between Cambodia and Thailand, Cambodia and Vietnam, and the tourism belt among the beaches of Cambodia to set up a casino and online casino," Luster's managing director Lim See Chea said in a statement today.

“In the next few weeks, we would be evaluating a few gaming and entertainment groups based in the region, to form a strategic partnership. Once finalised, we will announce the new partnership and our group’s expansion plans into various gaming aspects,” he said.

The high precision plastic parts maker is allocating some RM100 million as capital expenditure to expand its presence in the Cambodian gaming industry for the next three years.

It plans to raise the money either via the capital market, and/ or through bank borrowings and/or internal funds.

Last Friday (May 1), Luster signed a share sale agreement with Opal Deluxe Ltd to acquire 600 shares for US$4.2 million (RM15.15 million) cash, for a 60% stake in Pan Cambodian Lottery Corp Ltd (PCLCL) — a licensed number forecast operator in Cambodia.

“There is a profit guarantee which the vendor gives to Luster for the purchase, which is an aggregate of US$3 million over a period of three years, of which US$500,000 is for the financial year ending Dec 31, 2015 (FY15), US$1 million for FY16, and US$1.5 million for FY17,” said Liang.

PCLCL was incorporated in 2011 and had subsequently received its gaming licences from the Cambodian government, and operates the 4D, 5D and 6D games. The company has three draws a week — on a Monday, Wednesday and Friday.

“With the new partnership formed with PCLCL, we [Luster] have the resources to expand our lottery operations by increasing the number of agents and company outlets; we target to achieve 2,000 mobile agents and outlets within the next five years nationwide," said Lim.

He said there are currently about five players in the Cambodian gaming industry with similar licences, with the biggest being Hong Kong-listed NagaCorp Ltd.

Luster is optimistic about the future gaming market trend in Cambodia.

Its deputy managing director Liang Wooi Gee said Cambodia is a peaceful country that enjoys an economic growth of around 7% in the past three years.

“The Cambodian government has been very supportive of the gaming and lottery industry by imposing low tax rate on the industry and reasonable prize payout rate, the country’s gross domestic product (GDP) per capita based on purchasing power parity has increased from US$2,300 in 2011 to US$2,600 in 2013, and we believe this will keep increasing at a faster pace in coming years,” said Liang.

He said Cambodia has a low tax rate and the lottery company only needs 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; the use of an advanced lottery system has the risk-reduced considerably,” said Liang.
 
Cambodia also has a high punters population in which more than 96% of its total population of 16 million are legally allowed to buy lottery. About 4% are Muslims, who are not able to gamble.
 
“Cambodia is a foreigners’ market, as there are more than 800,000 Chinese from mainland China and Taiwan, and about one million Vietnamese staying in Cambodia, who favor the gaming and lottery business,” said Liang.
 
He said the country also offers low set-up and operation costs.
 
Luster (fundamental:2.25; valuation: 0.5) shares reached a six-month high of 11.5 sen last week. Its share price closed down 0.5 sen or 4.35% today to 11 sen, with a market capitalisation of RM173.2 million.

(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)