TIPS

AsianLogic - A Speculative Buy at 112p
Says IPO website AllNewIssues.com - 07/01/08

Background
Gaming company AsianLogic (ALOG) joined AIM on 28th December and in conjunction raised £40.7 million net in a placing of 48.5 million new shares at 111.62p. The shares now trade at 112p valuing the business at £123.5 million. Incidentally, the listing is the first by a gaming company since the anti-gambling laws were passed in the US in October 2006.

Operations
AsianLogic was founded in 2002 to focus on the Asia Pacific gambling market. It initially concentrated on assisting third parties with operating online gambling sites on a consultancy basis but subsequently became an operator in its own right. Today the company is involved in developing, operating, managing and marketing online casinos, online poker, Asian games such as Mahjong, sports betting, slot machines and server based gaming including videostreaming live casino games. In total, AsianLogic owns and operates eight online casino brands, two online poker rooms as well as land-based betting terminals through its MegaSportsWorld brand. In addition, the group has a relationship with 'StatsOnSport', a UK based company providing sports form analysis on a global basis.

In its early days, the company established live casino videostreaming operations for online gaming software supplier Playtech, which it continues to co-manage. The group acts as a distributor/reseller for Playtech in the region and as part of these activities it also assists with business development, product customisation and localisation for Asian markets. In addition, AsianLogic is the Asian distributor for land-based slot-machine and bingo slot-machine manufacturer, ID Games and server-based games provider Videobet.

In the six months to 30th June 2007, around 85% of the company's revenues came from online casino operations, mainly from customers in Malaysia and Singapore where internet usage is relatively widespread and gambling legislation is favourable. As well as earning net fees from its own brands, the company makes money from the provision of white label gaming services to third parties through which it earns a share of revenues. Mainly due to regulatory concerns, it does not take bets from the US or Hong Kong . AsianLogic is based in both Hong Kong and the Philippines and employs over 300 people. The company has its online gambling licences in Alderney, the Philippines and Curacao.

Business Development
The proceeds of the fundraising will be used to acquire additional online gambling operations. The company will acquire a 24% stake in a group looking to roll out several slot machine and digital gambling outlets in Macau in conjunction with a major casino group. AsianLogic also intends to buy a stake in ID Games for which it acts as a distributor and reseller.

In a slight diversification from its usual operations AsianLogic intends to use $25 million of the proceeds from the fundraising to establish a gaming and gaming related technology fund. It will take a majority stake in the management company which will invest in both public and private businesses.

Management
Non-executive Chairman, Jong-Dae Lee, is a lawyer by profession and has a background in corporate finance. He was previously a partner with Coudert Brothers and also spent time at Rabobank and Citigroup. Lee is the current CEO of Hong Kong listed medical services company China HealthCare Holdings Limited.

Executive Vice Chairman, Thomas Hall, is one of the company's co-founders and has considerable experience in the gambling industry. He is the former CEO and currently business development director of Playtech Limited and is on the board of several gambling and technology companies as a non-executive director.

CEO, Christopher Parker also co-founded the company. He is a former British Army man and has worked in the British civil service. In 1994, he joined the Tresidder Tuohy Group of Hong Kong and by 1999, he was appointed as CEO of the group, which became one of the leading investment advisory firms in the region.

Gary Underwood, chief financial officer, is a chartered accountant and during his career has spent time at Pannell Kerr Forster, Ernst & Young and Lark International in a number of roles. In 1996 he joined KPMG, where he became country director of its offices in Hanoi and Ho Chi Minh City in Vietnam . After KPMG, he returned to Hong Kong in 1998 as the chief operating officer of BSC Limited, a beauty, health and spa group of companies.

Chi Kan Tang, Global Business Development Director and the third co-founder of the company, has extensive experience in the areas of online gambling and live casino video streaming.

Valuation & Conclusion
With an established presence in the Asian market, an experienced management team and new funds in the bank we think that AsianLogic looks to have excellent prospects, given the growth in the Asian gambling market which is predicted to take place over the next few years. The gambling consultancy, Global Betting and Gaming Consultants, estimate that the Asian online gambling market was worth around $1.56 billion in 2007 and is forecast to grow to approximately $3.26 billion by 2012. That's a compounded annual growth of 15.9%. Specifically, Asian online casinos are estimated to grow at approximately 28.3% per annum to approximately $801.4 million by 2012, significantly higher than the single digit growth expected in the rest of the world.

The company has grown strongly since it was founded and in the six months to 30th June revenues amounted to $16.75 million, more than in the whole of the 2005 financial year. Post tax profits for the period stood at $2.7 million. The balance sheet also looked strong with $3.1 million of cash in the bank at the end of the period and minimal debt. The company has said that trading since the end of June 2007 has been in line with expectations and that the online gambling business has shown continued growth.

Taking into account the current number of shares in issue AsianLogic trades on a whopping historic multiple of around 90 times, however earnings are set to rocket over the next few years. Boosted by the continuing growth in the market pre-tax profits are expected to rise to around $12.5 million in calendar 2007, rising to $18.5 million in 2008 and $27.6 million in 2009. Due to being listed offshore the company pays very little tax (historically less than 1%) and we expect this to continue going forward.

If the profit target is met in 2009 then the shares will be trading on a price earnings multiple of around 9 times earnings, which despite the execution risks involved we think looks good value. An expected dividend yield of 6% in 2008 also adds to the attraction of the shares. Speculative buy.

Key Data

EPIC: ALOG
Market: AIM
Spread: 110p - 114p (3.5%)

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