AsianLogic to Curtail Credit Betting, Issues Profit Warning

25 November 2008

Having scaled back its low-margin but turnover-generative credit betting operation, AsianLogic Ltd. has said it is unlikely to meet forecasts for the full year.

The company, which offers land-based and Internet gambling services in the Far East, relied on credit betting to generate approximately 90 percent of its revenue, Chief Executive Thomas A. Hall told IGamingNews.

AsianLogic, Mr. Hall explained, used local partners in certain of the markets it serves to introduce customers to its products -- but it's to some of those partners that the company will discontinue offering credit.

Here's how it works. The company would extend a finite amount of credit to its partners, which its partners would distribute to their corral of players. The company's partners, though, were responsible for settling outstanding customer balances.

"We were beginning to see that some of the Hong Kong-listed junket companies were beginning to get into real trouble not being able to collect from their partners and their players," said Mr. Hall, when asked why the AsianLogic board decided to reduce its exposure to credit betting.

Two better-known junket operators in Macau, meanwhile -- Dore Holdings Ltd. and Amax Entertainment Holdings Ltd. -- have logged precipitous losses on the Hong Kong Stock Exchange this year. Executives at both companies, moreover, left their respective posts this month, with Ted Chan resigning as chief executive of Amax and Richard Loom as director of Dore.

With regard to AsianLogic's own credit betting business, Mr. Hall expressed concern that that much of the revenue the business generated had subsequently to be shared with its partners, creating a low margin.

Mr. Hall said AsianLogic will continue to diversify revenue toward higher margin retail clients whom the company can serve directly.

"We've decided as Asia's matured to get more into the retail customer market, and that part of our business has been growing very quickly, but it won't grow quick enough to recover what we've lost from doing the credit betting business," he said, in reference to meeting full-yearly targets.

Mr. Hall said that other of the company's land-based businesses are performing well, including its sports betting operation in the Philippines.

The company's shares, however, dipped a further 13 percent today in London and continue to trade well below the 112 pence flotation price of roughly one year ago. Mr. Hall indicated that AsianLogic has a "distressed seller" in the United States, which he identified as a hedge fund and a major shareholder.

In a stock exchange statement, AsianLogic called the move to curtail credit betting "prudent and risk averse," but said profits before tax will only marginally exceed those reported at the half year, $7.05 million -- well short of the adjusted $18 million forecast by its house broker, Collins Stewart.

"The Board believes that the 2008 shortfall are one-off in nature and does not reflect the long term development potential of the Company," the statement said.

Chris Krafcik is the editor of IGamingNews. He lives in St. Louis, Mo.