Entertainment Gaming Asia Inc.: A Storied Company With Ground Floor Opportunity

May.17.13 | About: Entertainment Gaming (EGT)

Entertainment Gaming Asia Inc. (NYSEMKT:EGT) is a Pan-Asian gaming company that develops and operates casinos and also leases electronic gaming machines to the gaming industry. EGA's slot operations operate on a revenue participation basis to provide high-quality gaming machines to Pan-Asian gaming markets. The company mainly focuses on the Philippines and Cambodia under long-term contracts with gaming venues and hotels.

In addition, EGA manufactures and distributes gaming chips and Radio Frequency ID (RFID) chips under the company's Dolphin brand. RFID could prove to be the wave of the future in gaming chips. Every RFID enabled chip has a distinctive tag that contains encoding complete with the chip's monetary value and additional data. This serves to streamline chip counting accuracy and inventory procedures in the casino cages. RFID also provides a nearly unbreachable currency security for the casinos that utilize them.

Gaming chips are one of a casino's most valuable assets and EGA's high-quality embedded RFID microchips offer the following to casinos worldwide, including superior:

  • Authentication
  • Counting
  • Tracking,
  • Inventory
  • Security
  • Shock resistance
  • External vibration protection
  • Destruction upon attempted removal

Industry insiders say that, although the RFID idea has been around for a few years now, the technology has greatly improved over the past few years and more and more casinos are using RFID every day. Since counterfeit chips can pose a major threat to many casinos, RFID embedded chips can act as a significant weapon against all types of fraud. When a casino that uses RFID technology receives a shipment of chips, those chips are absolutely worthless until the casino officially adds the serial numbers to its current inventory. The RFID technology is still developing and a full cage count is still not a reality, but will be in the near future, further creating a demand by casinos worldwide for the technology and for RFID chips from Entertainment Gaming Asia Inc., provided the company keeps up with emerging technology in RFID.

Entertainment Gaming Asia Inc. was incorporated in Washington, as Casinovations, Inc. in 1995, then again in the state of Nevada, in 1999. Then, in 2000, the name was changed to CVI Technology, Inc. and then to VendingData Corporation the same year. Another name change to Elixir Gaming Technologies, Inc. occurred in 2007 and then again in 2010 to the company's current name, Entertainment Gaming Asia Inc. Management felt that the current name tends to reflect more accurately the company's rapidly developing gaming business model, especially the most recent Cambodian hotel and casino in the Dreamworld line.

Casinovations, Inc. initially went public in 2003 as VNDC with a price of $2.50 per share and was listed on the NYSE American Stock Exchange in 2004. Currently, Entertainment Gaming Asia Inc. is traded under EGT and its CUSIP number is 29383V 206. The corporation's largest shareholder is EGT Entertainment Holding, a subsidiary of a public company that is traded on the Hong Kong Stock Exchange named Melco Group. Melco Group is a minority stockholder in Melco Crown Entertainment Ltd., which owns numerous resorts and hotels, including the Mocha Clubs and City of Dreams in Macau. This allows them to successfully showcase the use of many of their slots and their RFID chip tech.

In 2012, EGA relocated its gaming chips manufacturing facility from Australia, to Hong Kong, to save on payroll expenses and other overhead, thereby increasing that division's profits exponentially. It was estimated that this move could potentially save more than $ 1 million in overhead annually. EGA achieved vigorous improvement in plaque and gaming chip revenues, which totaled approximately $3.2 million during the first three quarters of 2012 compared with around $756,000 for that period back in 2011. Also, as of the end of the first quarter of 2013, the company carried zero debt and, at that time, EGA had a $4.5 million cash balance.

In addition, in order to capitalize on target market opportunities, as well as for leveraging EGA's already established presence, the company expanded all gaming operations in Indo-China under the Dreamworld brand by developing, operating and owning several new gaming clubs and casinos. EGA is currently implementing a junket program that is projected to greatly increase the number of VIP and premium players that gamble at Dreamworld Pailin, further boosting revenue.

Entertainment Gaming Asia Inc.'s offices are located in Hong Kong, Manila, the Philippines, and Phnom Penh, Cambodia, with manufacturing facilities and sales offices down under in Melbourne, Australia, as well. The company's fiscal year ends on December 31, and its quarterly, as well as annual, earnings reports are generally released within five weeks after the end of the first three quarters and nine weeks after the end of the fourth quarter. The corporation's independent auditor is currently Ernst & Young in Hong Kong and its last annual shareholders' meeting was held at the company's offices in Hong Kong in July 2012. No date has been set yet for the 2013 annual shareholders' meeting.

Based upon EGA's rapidly growing presence in the Pan-Asian casino markets, it seems to be a fairly solid investment with gaming operations revenue reaching $5.3 million in the first quarter of 2013. In addition, the company's plaques and gaming chips sales reached $1.4 million for the same quarter. With RFID technology and its popularity growing worldwide as casinos shore up security, it is perfectly positioned to take full advantage and get the all important Vendor relationship with Casino operators worldwide.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.