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Executives

Pou Lam - Chairman

Siak Hung Leong - Chief Executive Officer

Raymond Li - Chief Financial Officer

Kun Vong - Chief Operating Officer

Edward Chen - Assistant to the Chairman

James Preissler - Director of Asia Entertainment

Garrett Edson - ICR

Bill Schmitt - ICR

Analysts

David Bain - Sterne Agee

Mark Giambrone - Barrow Hanley

Steve Altebrando - Sidoti & Co.

Brett Reece - Janney Montgomery Scott

Matthew Campbell (ph) - Voreda Capital (ph)

Richard Safranek - Wafra Investment Advisory Group

Asia Entertainment & Resources Ltd. (AERL) Q4 2012 Earnings Conference Call March 27, 2013 10:00 AM ET

Operator

Good morning ladies and gentlemen. Thank you for standing by. Welcome to the Asia Entertainment & Resources Ltd fourth quarter 2012 earnings call.

Today’s call is being record. All participants are in a listen-only mode. Following the presentation we’ll conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions.

And now I’d turn the conference over to Garrett Edson. Please go ahead.

Garrett Edson

Thanks and welcome everyone to Asia Entertainment & Resources Ltd. fourth quarter and full year 2012 earnings call. Participating on the call today will be our Chairman, Mr. Pou Lam; our COO, Mr. Kun Vong; Mr. Siak Hung Leong, Chief Executive Officer; Mr. Raymond Li, Chief Financial Officer; Mr. Edward Chen, Assistant to the Chairman and Mr. James Preissler, Director of Asia Entertainment.

The company issued a press release reporting financial results for the three months and year ended December 31, 2012, which can be accessed at most financial websites, as well as our own at www.aerlf.com.

For the purposes of this call all figures presented will be discussed in U.S. dollars. This conference call may contain in addition to historical information forward-looking statements about ARL within the meaning of the federal securities laws. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements other than those that are historical in nature.

These forward-looking statements is based on current management expectations and are subject to risks and uncertainties that may result in expectations not being realized and may case actual outcomes to different materially from the expectations reflected in these forward-looking statements. For more information on these matters, we encourage you to review ARLs SEC filings.

I would now like to turn the call over to Mr. Bill Schmitt of ICR.

Bill Schmitt

Thank you Garrett. 2012 was a transitional year for AERL due to the slowing of the Chinese economy. However we believe we managed the business appropriately and as a result we believe we are well positioned as we continue on into 2013.

The tightening of the credit to junket agents had a near term impact of our overall performance that we expect will reverse as the Chinese economy strengthens. To that end our strategic decision to shift our remuneration model away from the fixed commission model to the revenue sharing model as of September 12, 2012 should allow us to improve our competitiveness in the market with the goal to increase our net and non-GAAP income.

During the first quarter of 2013 we completed our original 2 million share repurchase program and authorized the establishment of a new program to purchase up to 4 million of our ordinary shares on the open market at prices to be determined by management. The program commences on the second business day after today’s release of our financial results for the year-end December 31, 2012 and the program expires on December 31, 2013.

Overall, we remain committed to growing our business presence in the Macau VIP gaming market and continuing to create value for our shareholders in 2013 and beyond.

I’d like to turn it back over to Garrett to discuss some of the financial results. Garrett.

Garrett Edson

Thanks Bill. And lets to through the fourth quarter and full year 2012 financial results. Revenue for the fourth quarter 2012 was $56.4 million, a 19% decrease from $69.7 million in the prior year period. Net revenue as a percentage of Rolling Chip Turnover was 1.39%, up from 1.25% in the prior year period.

AERLs primary expenses commission to agents, which was $38.4 million in the fourth quarter of 2012, down 14% from $44.5 million in the fourth quarter 2011. Commissions to agents as a percentage to Rolling Chip Turnover was 0.95% in the fourth quarter of 2012, up from 0.8% in the fourth quarter of 2011 as a result to higher percentage of commissions paid to land marker agents and a smaller percentage of direct business in relation to total Rolling Chip Turnover.

Selling, General and Administrative Expenses as a percentage of Rolling Chip Turnover was 0.12% in the fourth quarter of 2012, up from 0.09% in the prior year quarter.

Non-GAAP operating income before amortization and change in fair value of contingent consideration for the fourth quarter of 2012 was $12.6 million or $0.30 per diluted share, a decrease of 36% from $19.8 million or $0.46 per diluted share in the same period of 2011, due primary to the tightening of credit and to lower revenue generated from decreased Rolling Chip Turnover as a result of the economic slowdown in parts of Mainland China.

Non-GAAP income before amortization and change in fair value for contingent consideration margin as a percentage of total revenue in the fourth quarter 2012 was 22.4%, down from 28.3% in the fourth quarter of 2011. Income margin as a percentage of Rolling Chip Turnover was 0.25% for the fourth quarter 2012, down from 0.33% in the prior pear period.

Net income for the fourth quarter 2012 including all items was $10.1 million compared to $16.4 million in the fourth quarter of 2011. GAAP, basic and fully diluted EPS derived from net income for the fourth quarter 2012 was $0.24 based on a basic and fully diluted weighted average share count of approximately $42 million. Basic and fully diluted weighted average share counts were calculated in accordance with generally excepted accounting principals.

Full year 2012 results include Rolling Chip Turnover or $18.1 billion, a decrease of 9% from $19.9 billion in 2011. Revenue for 2012 was $236.3 million, down 6% from $250.6 million for 2011.

Full year 2012 non-GAAP income before amortization of intangible assets and the change in fair value of contingent consideration was $61.6 million, a 19% decrease from $76.1 million for the same period last year. Non-GAAP fully diluted earnings per share for the full year 2012 was $1.46 on 42.3 million fully diluted shares versus $1.97 on fully diluted shares of 38.7 million for the full year of 2011.

Revenue as a percentage of Rolling Chip Turnover for 2012 was 1.30% versus 1.26% in 2011 and operating income after amortization of intangible assets and before the change in fair value contingent consideration as a percentage of Rolling Chip Turnover was 0.3% for 2012 versus 0.36% in 2011.

Turning to the balance sheet and cash flow statement, cash on hand as of December 31, 2012 was $20.6 million. Cash provided by operations was $46.4 million for the year ended December 31, 2012. As of December 31, 2012 total available cage capital was approximately $262.4 million, the total available cage capital is comprised of markets receivables of $241.7 million, and cash, cash chips and non-negotiable chips of $20.6 million.

I would now like to turn the call over to Jim Preissler, Director of Asia Entertainment for his closing thoughts.

Jim Preissler

Thank you Garrett. For the first two months of 2013 AERLs Rolling Chip Turnover averaged $1.28 billion per month, giving us a Rolling Chip Turnover at Macau of $2.55 billion as of February 28, a decrease of 29% year-over-year.

With the tightening of credit to junket agents we are introducing our Rolling Chip Turnover guidance for our four existing VIP rooms in Macau of $1.5 billion per month, subject to monthly fluctuations, which equates to a total of $18 billion for the full year of 2013, essentially comparable with 2012 results.

I believe for the reminder of 2013 our business will remain on a revenue sharing basis. We are introducing non-GAAP income guidance for the year-ended December 31, 2013 of $60 million to $75 million, based on our current and expected performance of our existing four VIP rooms in Macau, and did not take into account any passable future expansion or additional VIP gaming operations or rooms.

This completes our prepared remarks. I’d like to turn it over to the operator to open up the Q&A session.

Question-and-Answer Session

Operator

(Operator Instructions). And we’ll take our first question from David Bain with Sterne Agee.

David Bain - Sterne Agee

All right, thank you. Hey guys, looking at your cash generation in the first two months of this year and your 4Q ’12 ending cage capital. I mean your $18 billion overall implies slow returns this year relative to last. And given your comments on the improving China economy and how that correlates to the credit extension, just trying to understand, to get some color on how you derive that Rolling Chip Guide. Is this fair to say that you kind of took a base case scenario approach?

James Preissler

Yes, that’s David and good morning.

David Bain - Sterne Agee

Good morning.

James Preissler

So basically what we get is we still have a decent amount of unused capital. As you can see on the balance sheet there’s about $20 million of cash and we have about $25 million or so of unused credit line. So we are working with about $45 million, $50 million of unused capital.

So when you take that out of the capital we use, we are utilizing right now, the turns are relatively equivalent. It’s really the unused capita here that’s causing the change in turns. So I think that’s the first issue with regards to that metric.

Now as far as our guidance, I mean obviously we’re taking a modest up tick, and the 1.5 is basically about a 20% increase from where we’ve been trending over the last few months. So I think what we’re indicating here is that it’s hard clearly over the last year to forecast.

So we are clearly seeing an improvement in the business and I think we’ll see that reflected over the next couple of months and our goal here is to be conservative, because even the short-term outlook for the improvement in the mainland economy is challenging a best forecast here.

So I think we’re taking the current trend of where we are now and using that as our baseline and I think to be conservative here is the prudent course of action, so we can hopefully walk up the distance as business improves over the course of the year if that is actually the case of what’s happening.

David Bain - Sterne Agee

Okay, okay great. And then in your net income guide, that range, your commissions as a percentage of rolling chip turnover, if I can get a view of your assumptions there. It looks like if we use the rolling guide, the first few months results, commissions as a percentage of agents would be actually lower than the fourth quarter result at the mid point of your guide and does that indicate a lesser mix of non-marker agents this year potentially or more direct play.

James Preissler

Yes, there’s a few aspects that are contributing to this. The first obviously is the win rate. I think we’ve always talked about in the past, how the win rate was volatile on a short term, i.e., monthly or quarterly basis, and clearly as you can see from the numbers, it’s very volatile for some of these large sized and its even volatile for somebody at the size of a casino, whether it’s a win or an Mpel (ph) or MGM whatever, you even see volatility at that scale.

So there’s a quite a bit of volatility in that. Its hopefully going to continue to trend along the averages and clearly the first couple of months of the quarter so far was very much in our favor, so that’s the first aspect.

The second aspect is that we’re seeing a lot of the business here. If I could step aside for a minute and talk about where the business is really coming from, from our newer agents. So these newer credit agents might not have the credit history, the commission history here, so that could be playing on a roll here. We are not seeing the larger traditional agents coming into the rooms right now.

A lot of our business is actually coming from these newer classes of agents, which are being driven by new pockets of wealth in Mainland China, so that’s also playing in a roll. And the mix always between cash and credit is clearly going to swing those things together.

So it’s challenging to forecast this, because it is very different from a month-to-month basis. I mean all these things can contribute quite a bit of volatility here. We’re trying to manage these things the best we can on a real-time basis. That being the win rate, the amount of credit we’re extending and it is a challenge.

David Bain - Sterne Agee

But you can actually – if I look at 4Q, is that on the high end. Do you think of a percentage or willing to turnover commissions for junket agents at deploying 96.

James Preissler

I think that would be the high end of the range yes, and above that the win rate plays a role there too.

David Bain - Sterne Agee

Okay, and then just – I’m sorry, the Honk Kong listing if to the extent possible, if we can get any kind of update there?

James Preissler

Of course. So I think our goal here is we’re applying full steam ahead. We haven’t talked about it a lot publicly, but behind the scenes there’s a lot of work going on to create the filings.

Our goal right now is to finish the actual prospective stock listing over the next month or so, to get that on file and then just like the U.S. review process its typically I’d say three, four months of back and forth review of the document with the Hong Kong SEC and that will prepare us some time in the third, fourth, probably it will be most likely at the end of the third quarter to be conservative on that, to go ahead with an actual listing. So that’s kind of the timeframe there. So we are going blazing full steam ahead with that, but that’s the typical process.

David Bain - Sterne Agee

Okay, and then sorry to everyone in queue, just one last one for me. If you can give any kind of color on the thought process of moving your VIP into Cotai Central for the Venetian and since that’s occurred some idea on the impact overall. I mean has this been a positive move from that perspective.

James Preissler

Well, I think we clearly want to keep our relationship with LVS; we have a very good relationship there. We wanted a room that was commensurate to driving a little higher quality clients and clearly LVS has put a lot of effort into building a very nice property over Cotai Central and there’s been some delays on the renovations over at the Venetian. So we had moved to a slightly better room over at the Venetian, but we are still holding out for that better property.

So we did in the interest of waiting in perpetuity for that to happen. We moved over to a very nice room at Cotai Central and the impact of that is actually you’ve seen in the first month a very nice up-tick in the number of players coming through the room and correct me if I’m wrong Ray and Ed, but its almost twice the number of players that we have been seeing over the last few months at the Venetian.

So yes, almost right out of the gate we’ve seen a nice up-tick of business there and I think the key thing is that that room is very high quality room, it looks good, it has product tables. So I think over time we can bring some of those higher tier clients over there and continue to drive the existing traffic and continue to see those nice trends.

David Bain - Sterne Agee

Okay great. Thank you guys.

James Preissler

Thanks Peter.

Operator

And we’ll take our next question from Mark Giambrone with Barrow Hanley.

Mark Giambrone - Barrow Hanley

Good morning David and nice to have agreed on some of my questions, but if I could just give some clarity around the conservatism you suggested in your guidance, it does make sense from an outside observer that things are clearly improving, both in China in general and the Macau specifically, and I recognize your trying to be conservative, but I think what I hear you saying is if things continue to improve, then this is a conservative guidance, and so you will be in a position to continue to increase your caged capital and willing to turnover.

If what I’m saying is correct, which is Macau continues to improve and China’s economy continues to improve, then you are in a position to take advantage of that and things for you will start to flow through better than what your expectations are today. Is that fair?

James Preissler

I think that is absolutely fair Mark. I think that’s the goal, is that clearly the last year as Ray pointed out has been very volatile for both the Mainland economy and given Macau in general on the VIP side. Now specifically on the credit side of VIP where your seeing volatility, cash VIP continues to be very healthy.

Now if we’re talking about our client base, to give you some granular detail there, what we’re seeing is only a trickle of those larger traditional bigger ultra clientele coming to the room and those are the people that are most sensitive to recovery in the Mainland economy.

If that trickle starts to hold up a bit, we could see a nice increase in our numbers here, because right now we are really focusing on cultivating those newer agents and newer regions of China, but they have potentially smaller credit lines, because they haven’t been around as long, both agents and the players and obviously they are not playing it large right now.

So we’re trying to fill a few new clients to replace every one of these old clients. However if these old clients start coming back with the improvement in the Mainland, then we start to continue to see the steady state improvement, we can see some very nice upside there in the numbers. So that’s where we’re trying to direct the guidance towards and that’s what’s underlying our guidance.

So yes, we’re starting to see the trickle of all those clients coming back, but we haven’t seen a sustained, an up-tick in that business quite yet.

Mark Giambrone - Barrow Hanley

Fair enough and I think that’s a great approach. One last question for me is, obviously in the last buyback your guys were very aggressive and go rid of or got after it. Will you do the same thing this time or how should we think about where the stock is trading today relative to your decision and aggressiveness in the buyback.

James Preissler

Again, I’ve talked about this in the past. We have cash flow and with cash flow there’s a lot of things you can do; you can buyback shares, you can pay your dividend. I mean we’ve been trying to use all our tools that we have to improve the overall results of the business, because we actually believe that over time the business, the credit VIP business in Macau is going to improve, but we are not going to bank on that and do nothing and we are going to try to use all our cash flow as most effectively as possible as we can now to prepare ourselves for the future.

So yes, we’re still sitting on a war chest to take advantage of an improvement in the business, whether that means acquiring rooms, opening new rooms, but we still have some capital left over, which we’re paying the dividend and we can do buybacks. So I think we want to use all those tools as we’ve done in the past to continue in the future.

Mark Giambrone - Barrow Hanley

Okay great. Thank you.

James Preissler

Thanks Mark.

Operator

And we’ll take our next question from Steve Altebrando with Sidoti & Co.

Steve Altebrando - Sidoti & Co.

Good morning guys. Just wanted to check in how the recent acquisition integration is doing. When do you expect to have some of these agents ramp up and if they are contributing at all to the January and February numbers we’re seeing?

James Preissler

Yes, those agents are contributing and I think as I pointed out, those newer agents and players are contributing a lot to our business right now, because again when these older established clients that comes in and plays several million Honk Kong, it has an outsized impact to the business versus several new players that are coming at 500,000 Hong Kong. So we are already seeing a nice contribution from them and I think they’ve helped backstop a lot of the loss of these bigger players over the last year or so.

Now as I said the good news is we’re starting to see, we’re issuing the credits to these larger agents and we’re starting to see those agents in turn starting to issue the credit to some of those players, so we’re starting to see some of them come back this month and I think we’ll start to see them come back on forward. But if that turns around, there could be some really good upside in the numbers, because the newer agents and the agents we’ve gotten from the acquisition are already starting to perform quite nicely.

Steve Altebrando - Sidoti & Co.

Are they fully ramped up you suspect? In terms of…

James Preissler

It does take time. Ramped up meaning we don’t have them at the level where they have millions of dollars of Hong Kong credit line quite yet, but they still, you know they have decent sized credit lines. So it does take time to build up an agent from a few hundred thousand, 500,000 Hong Kong to 5 million Hong Kong in credit volume. So we’re in the process of doing that, but it is happening.

Steve Altebrando - Sidoti & Co.

Okay, and I might have miss heard you, but I think you mentioned that the newer agents are pushing up the commission percentage to payout to the agents. I’m not exactly clear how that works. Are you having to pay up to learn our new business; is that what that suggests?

James Preissler

Oh no, I am thinking this, but I didn’t say that. I said on the commission history it’s really the mix of business. It’s the mix of cash credit, win rate, its all these different factors that are creating a little bit more volatility in the commissions that we’re paying out.

Now what we’ve seen in Macau is that one of the healthier segments in VIP and also premium mass is that cash segment and same thrust. Obviously the highest commission you pay out is a cash commission. So when the agent comes in who’s playing with cash, you pay out the highest level of commission.

Now the biggest impact of VIP and then you’ll see it in like win’s VIP numbers and some of the other players VIP numbers that distinctly report that segment obviously has been the credit. The credit segment is the segment of the business that gets hit the hardest.

Steve Altebrando - Sidoti & Co.

Okay, that makes sense. And just taking I guess the other side of the rolling ship turnover guidance is after the first couple of months it implies I guess basically 6% increase for the last 10 months of 2013, but the first couple of months where I think we’re down somewhere like 30. So I guess, when would you suspect, enable to hit that range. What timeframe of the year would you have to term positive on the year-over-year basis?

James Preissler

So clearly I think it goes on the – the comps get easier. So the 1.5 is I think what we’re trying to build to near term and hopefully that’s not the steady state for the long term, but again we’re trying to be conservative with that assumption.

So if we assume we’re ramping up from where we have been over the last couple of months, near term, that translates to roughly five for the year. Now hopefully that in any way the economy improves or this high-end credit segment continues to improve, because these players and agents have an outside impact positively to the business. Now last year was the outsized impact negatively, but we’ve already hit a couple of the trials of the business on that.

Steve Altebrando - Sidoti & Co.

Okay, I guess that makes sense.

James Preissler

Well, I guess to answer your question simply; we are looking at that rating in the sheer near term.

Steve Altebrando - Sidoti & Co.

Okay, because it looks like the 1.5 is roughly probably 15% higher than what your doing over the first couple of months a year. I know maybe the win rate played with that a bit. Is there anything in March I guess that would suggest the investors would think there’s a better ability to achieve 15.

James Preissler

Well, I think that’s our goal, near term is to get to those levels and that’s absolutely the case.

Steve Altebrando - Sidoti & Co.

Okay, thank you.

Operator

(Operator Instructions). We’ll go next to Brett Reece with Janney Montgomery Scott.

Brett Reece - Janney Montgomery Scott

Hi gentlemen.

James Preissler

Good morning Brett.

Brett Reece - Janney Montgomery Scott

Good morning. When are we going to get an announcement on what the dividend for the second half of the year is going to be?

James Preissler

Right. We still have to file the actual auditor report, which will happen in the next day or so and it will be after the official filing of that, that we’ll be able to talk about it and obviously you can get a very good sense on it with 15% of the EBITDA. So you can get a good gauge at it from existing actuaries, but we haven’t officially released that yet until the actual auditor report gets filed in the next day or so.

Brett Reece - Janney Montgomery Scott

Right, right, good. Based on the amount of volume that your shares trade, ballpark, how many shares can you buyback on a daily basis, based on the rules and the trading pattern.

James Preissler

I mean there’s all kinds of blackout periods that I’m not – I had to have delivered in front of me, but we are subject to the same rules that anybody else would be on the buyback; there’s nothing unique about our business. But it roughly works out to on the days you can buyback shares, I think you can bill it to 25% at the trailing volume. Is that the correct number Raymond and Edward?

Raymond Li

Yes.

James Preissler

25% a month average volume I believe they said is the number.

Brett Reece - Janney Montgomery Scott

Right, right, I appreciate that. And just back to the envelope, the stock is trading maybe 2.5, 3 times what you think you learned in 2013. When you get the listing on Hong Kong, what multiple do you think, without the skepticism of the American shareholder base do you think is achievable if you are successful in getting that listing.

James Preissler

Well, I think what we are trying to achieve with the Hong Kong listing is open up a new group of buyers, which to this point have not really been able to buy the stock, which in the Mainland Chinese Investment Audience.

So I think that is what we are trying to do, is add a new layer of demand of buyers to the stock that up until this point have been unable to buy it. And what that translates into a multiple is hard to ascertain, but clearly when you add a new segment of buying demand, its traditionally going to be helpful for the overall multiple. So I think with that element in place, we are trying to achieve a higher team, trading queue. Now also that audience traditionally is traffic to dividends and steady cash flow, so that’s another thing that’s very attractive to that buying audience.

So with that said, what number does that translate to, I don’t know, but I think it will be something clearly higher than where we are right now. So there is a three T to five T or who the heck knows, I don’t know. But adding new demand to a stock is beneficial at a minimum.

Brett Reece - Janney Montgomery Scott

Is there any comparable now trading on the Hong Kong stock exchange?

James Preissler

As a pure play VIP room there really isn’t at this point in time. There are some vehicles that have elements of VIP play and have some profit interest in VIP rooms, but there really is no pure play VIP comparable.

Brett Reece - Janney Montgomery Scott

Okay. Thank you for answering my questions.

James Preissler

Thanks Brett.

Operator

And we’ll take our next question from Matthew Campbell (ph) with Voreda Capital (ph).

Matthew Campbell (ph) - Voreda Capital (ph)

Hello, Voreda Capital. So could you just comment on trends you are seeing at March. Basically you see the Roll Chip increasing from February.

James Preissler

Yes. I mean thanks Matt, good morning. We do see positive signs in March. I mean Macau has been strong in March and we are starting to see the continued signs of those bigger agents and players coming in. So we are seeing positive results in March.

Matthew Campbell (ph) - Voreda Capital (ph)

And back to the Hong Kong exchange listing, could you quantify the expense, the one-time expenses with that list at your side and/or that.

James Preissler

Well, we hired the top tier law firm and the expert in this. So that does not come cheap and we also hired a good auditor and we hired a top tier auditor in continuation with our existing audit firm UHY. So now we have two top 10 auditors auditing the company, which I think the long-term benefit of the business is beneficial, but none of these things come cheep. So the expense here is a few million dollars.

Matthew Campbell (ph) - Voreda Capital (ph)

So you now have another auditor and you are saying it’s a top five, top six overall.

James Preissler

Its actually – the other auditors are top five.

Matthew Campbell (ph) - Voreda Capital (ph)

That’s fantastic, good. Could you speak to the competitive landscape, what you are seeing out in the market place today as well.

James Preissler

Yes. What we are seeing across the boards is that, we are seeing some more trends to everybody else. In that the high end credit, there’s traditional older players that were driving a lot of the business in Macau over the last several years, they are still relatively muted and we are starting to see the signs of that coming back to life. But it’s still very early.

Now its been driving Macau over the last several months as the newer pockets of wealth, the newer agents, newer players coming from these other cities all over China that are continuing to be developed and a lot of this is being driven by cash plays, because these people haven’t established large credit lines yet and they are coming into the premium mass and cash level VIP, and that’s where the strength in Macau has been over the last nine months or so.

So the long-term benefit here is that we are seeing a new class of VIP’s coming to Macau. The older class has some signs of life and constructed should be thinking in a big way yet again, when things continue to trend positively in the Mainland and the overall impact here is that we are working to cultivate this new class of agents and players and at the same time leave if there’s any credit to these larger traditional agents.

Those agents need in turn to have players that they are willing to give credit to if they were coming from Macau. I mean as far as our standpoint, we have loosened up the credit to the agents. Its really the agents need to be able to safely deploy that credit after their player.

Matthew Campbell (ph) - Voreda Capital (ph)

Great, and the guidance that you are giving is without a financial new acquisition that you see…

James Preissler

Right, we are really giving guidance base on right now.

Matthew Campbell (ph) - Voreda Capital (ph)

Great. Well, I applaud you guys for doubling your buyback. I think that’s fantastic. Best of luck. Thanks.

James Preissler

Thanks again.

Operator

And at this time there are no other questions in queue. I’ll turn it back to our presenters for any closing remarks.

James Preissler

Yes, I think we have one more. We have time for one more question, if there’s any.

Operator

Okay. Looks like we just had Richard Safranek pop in from Wafra Investment Advisory Group.

Richard Safranek - Wafra Investment Advisory Group

Hi, good morning, thanks for the call. Just to follow on from previous callers question regarding comparables in Hong Kong, would you say the Neptune Group is the closest comparable that we could look at.

James Preissler

Yes, it is the closest comparable and clearly the business in Neptune is the same business. However the public listing they have, it’s not as clean of a structure. Its partial interest in multiple different VIP rooms and it’s not even the entire Neptune Group.

I believe Neptune overall through all its acquisitions have somewhere between 15 and 17 rooms in total and Neptune has partial interest in these rooms. Now in some cases they share either the name Neptune and I believe the transition involve the rooms over the Guantong Group; the Guantong VIP room, but they still have a lot of outside partners.

Now what’s in the public shell is a partial interest. It’s only a few of those rooms and only a sub interest of that partial interest. So what you are getting is a large number of shares. So I think there’s 4 billion shares outstand and a partial interest in some of the rooms.

So its not really clear what is trading there. I think they are working to better utilize that structure and clean it up and so on. So yes, didn’t seem business, but the actually list of public company is quite a bit different from the way we are structured. So that’s the difference there.

Richard Safranek - Wafra Investment Advisory Group

Okay, that’s helpful, but I mean when you look at if multiple is at least on a fee basis is lower than yours.

James Preissler

Yes, I mean there’s a lot of – I think they have to generate. There’s soo many share outstanding that they have to have very wide profit swings in order to drive their earnings per share up or down.

Richard Safranek - Wafra Investment Advisory Group

Okay the other question I had is more sort of just a philosophical question here. I mean in the way the stock is persistently traded at this ridiculously low PE, which the market clearly seems quite skeptical of what is out there or what this company is, and then how legitimate it seems and the longer it persists, it sort of becomes self fulfilling in a way that this discount is never closed.

What’s the issue about, why doesn’t management just do a buy out themselves if the market isn’t going to pay the kind of multiple that it seems that the stock deserves, and given the high level of inside or ownership, why doesn’t management just take this company private?

James Preissler

Well we do get benefits of being public. Now remember we have significant credit lines with the casinos. So that is an overall added benefit that we have of being public. So to remove those will be a drastic drop-off in overall business. So there is a relatively large impact from the benefit of being public to the overall results that we can achieve.

So the second was free money. I mean we’re not paying any interest for this money and it allows us to generate some nice cash flow over the course of the year. So that is a significant benefit that is attributable directly to being public.

Now, the skepticism is different in Hong King versus Macau. I don’t know of too many companies that will have two top 10 auditors auditing the company. Its very qualified top 10 auditors auditing the company, lifted on two exchanges going through two reviews, generating the type of cash flow, paying a dividend that’s where the scenario that that’s played out over time has been sustainable.

I mean what’s happened in China, with the Mainland Chinese listed companies, its happened before and it seemed to be cycled from these things, its also happened in the U.S. before and its happened in many market. So we’ve seen this scenario play out before and I think you remember the last time with (inaudible). I mean many of our stocks dropped down to low single digits, the end of a $1 stock and it ended up being 20, 30 baggers and so its not like the first time we’ve seen this happen.

So to make such a drastic decision, when we are clearly getting benefits from being public, that’s why we took the choice of listing in Hong Kong, because that’s a different offset, a different assessment and optimism for one of these types of businesses and its here right now. But how long this will last, I don’t know, but we’ll know which companies can’t get through to audits sometime this summer. That will be kind of a last shoe to drop in that segment.

And overall investors can’t avoid such a large investment of the stock market and such a larger segment as kind of related stocks forever. Eventually the ones that have survived their audits and are good corporate management and doing all the right things, we become attractive again to these institutional investors, because they need to be invested and allocated into those regions. It’s just a matter of time. So we continue to try to do the right things, and eventual I think that will fade out of it. So it’s a marathon here unfortunately at this point in time.

Richard Safranek - Wafra Investment Advisory Group

Right. Okay, thank you. I just had one last question regarding sort of the buyback. Have you considered also just the tender offer as opposed to an open market buyback?

James Preissler

We actually did and we had them prepare an assessment of 40 or 50 deals for us and we looked at the long term sustainability of those details and I can’t remember off the top of my head, but its something like in only 25% of the cases was the tender offer sustainable over a one month and six month period there. It had a beneficial impact to the stock. So it was surprising to us when we looked at the actual study of the tender offers and the long-term impact.

Now clearly you don’t know, all the underlying impacts of the company, was the company struggling, was it loosing money, blah, blah, blah, blah. You don’t really know why a company was ineffective in its buyback. When we looked at the overall data, the trend wasn’t what we thought it wound have been, and that’s why we chose to do the buyback the way we are and do it as a supportive mechanism to the stock.

Richard Safranek - Wafra Investment Advisory Group

I appreciate the feedback. Thank you.

James Preissler

Thank you.

Operator

(Operator Instructions). We’ll take our next question from David Bain with Sterne Agee.

David Bain - Sterne Agee

Well, okay thanks guys. This is a boring one. Fourth quarter SG&A, I think I may have been hinting at that, but was that impacted by the Honk Kong listing expenses?

Raymond Li

Yes. For the SG&A for the fourth quarter, that is not related to the – I mean the listing expense menu. Because in the fourth quarter we need to pay – I mean we acquired rooms. So we have to pay the management fees of approximate $0.6 million and then during the year more compliancy cost that also accounted for $26 million and was mainly because of the increase in salaries for the staff in Macau. So overall that contributed for increase in the SG&A for the fourth quarter.

David Bain - Sterne Agee

Okay, so that jobs back to like the $4.5 million per quarter kind of range, so just over the quarterly, so I’m just wanting to quarter-over-quarter. I go it. Okay, thank you.

James Preissler

Thank you.

Operator

And at this time there are no other questions in queue.

Garrett Edson

Right. Well thank you very much. And you can obviously reach us at the phone numbers and the emails at the bottom of our press release. We are happy to answer any investor’s questions and also as always, anytime anybody is in Macau and they’d like to see the rooms, we’ll be happy to host you.

So thank you for attending today’s earnings conference call and your continued interest in AERL. Thanks. Bye.

Operator

That concludes today’s conference call. We appreciate your participation.

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