Ian Cassel's  Instablog

Electronic Game Card, Inc (sym: EGMI) signed a definitive agreement to partner with China LotSynergy to enter the Chinese Lottery Market.  China LotSynergy has partnered with International Game Tech (IGT), Lottomatica (used to be GTECH), and now EGMI.  This is a very material event for the company and one that could add tremendous revenue and net income in 2010.  China sold 9 billion lottery tickets in 2008, which is government mandated to double by 2010.  The Welfare lottery makes up approximately 50% of the lottery tickets sold (4.5 billion tickets).  China LotSynergy is the only player in the Chinese Welfare Lottery System, so it is logical to assume China Lot/EGMI can capture as big a piece of the welfare lottery market as they choose. 

Ivy Lau, Chairperson and CEO of China LotSynergy commented, "Our goal is to contribute to the secure operation and healthy development of China's lottery market. We have formed partnerships with global industry leaders such as International Game Technology ("IGT"), GTECH, and, now, Electronic Game Card to ensure the success of our mission. We are actively engaged in enriching the variety and content of games. The Electronic GameCard(TM) is an engaging next generation platform that we believe will contribute materially to the accelerated growth target of the lottery industry in China and throughout the region." 

International Game Tech (IGT) recently (10/12/2009) invested another $9.8 million in China LotSynergy to further develop the lottery system in China.  This further validates IGT’s vision to advance one of the hottest lottery markets in the world, while also making IGT an indirect partner with EGMI.  In addition to the People's Republic of China territory, once a joint venture between the companies is established, the joint venture will have the right of first refusal for further distribution expansion into the Asia Pacific region including Hong Kong, Macau, Taiwan, Malaysia Vietnam, Singapore, Philippines, Cambodia, North Korea, Indonesia, Thailand, Laos, Brunei, Fiji, and Federated States of Micronesia, excluding Japan and South Korea.  This China LotSynergy agreement could lead to infinite profit centers for EGMI. 

The deal with China LotSynergy is expected to be a 50/50 JV, so all revenues and profit would likely be split evenly.  Let’s say the JV sells 100 million electronic lottery game cards in China in second half 2010 which would represent a 1% market penetration.  The potential price per card will likely be $1-1.50/card with gross margins of 20-30c per card.  EGMI’s take could be $50-75 million in revenues, and $10-15 million in Gross Profit in the second half of 2010.  This China deal alone could add $0.10+ in after tax net income in the second half of 2010.  EGMI will likely report $16 million in revenues and 14c EPS for FY 2009.  I expect EGMI will have a breakout year in 2010 as revenues and net income could increase dramatically from 2009 levels.    

Disclosure:  LONG EGMI