Citigroup has issued a double upgrade on NagaCorp Ltd., lifting the stock from ‘Sell’ to ‘Buy’ and significantly raising its target price following the termination of the Naga 3 Subscription Agreement.
The investment bank said on December 15th that it now assumes ‘the scale and development costs of Naga 3 Project could be halved from its initial estimate of $3.5 billion to $1.75 billion’.
The upgrade follows NagaCorp’s announcement of the mutual termination of the Naga 3 Subscription Agreement with its majority shareholder. Under the original agreement announced in July 2019, the majority shareholder had committed to subscribe for more than 1.1 billion settlement shares at HK$12 ($1.54) per share to help fund the Naga 3 development project.
Citigroup analysts Timothy Chau and George Choi said in their research report that the termination removes a significant ‘share dilution overhang’ that had previously weighed on the stock. The $316 million in cash advances already paid by the majority shareholder has been forfeited and transferred to reserves.
With the reduced project scope, Citigroup believes NagaCorp can now fund the Naga 3 capital expenditure through future operating cash flows, eliminating the need for the large equity dilution that would have resulted from issuing more than 1.1 billion new shares. The bank estimates that NagaCorp has already spent approximately $735 million on the Naga 3 development to date.
The Citigroup analysts maintained their near-term earnings forecasts for fiscal years 2025 through 2027 but adjusted their valuation methodology. The firm now uses a basic share count instead of a diluted share count in its target price calculation, reflecting the removal of the potential settlement shares from the equation.
Citigroup expects NagaCorp’s management to announce further details on the revised Naga 3 development plan by the first half of 2026.
NagaCorp has said it intends to continue with the Naga 3 development and will explore alternative funding sources if necessary. The company operates NagaWorld, Phnom Penh’s only integrated hotel and entertainment complex, and holds an exclusive casino license within a 200-kilometre radius of Cambodia’s capital until 2045.
