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Russian tax plan to weigh heavy on Summit Ascent: Union Gaming

TAGs: Grant Govertsen, primorye, Russia, summit ascent holdings, tigre de cristal

Hong Kong-listed casino operator Summit Ascent is bracing itself for the Russian Duma’s plans to hike gaming taxes throughout the Russian Federation by next year.

Russian tax plan to weigh heavy on Summit Ascent: Union GamingInternational brokerage Union Gaming Securities Asia Ltd. warned on Wednesday that Summit Ascent’s earnings before interest, taxation, depreciation and amortization (EBITDA) for 2018 may take a hit by as much as 6 percent should Russia gives the greenlight to boost the tax on gaming devices.

“Primorsky (Vladivostok) already set taxes at the high-end of the federal range, and should the bill be passed and Primorsky choose to remain at the high-end, this would have an ~HK$11 million impact on our 2018 EBITDA estimate (6% below our current forecast). There is further speculation that tax rates could be adjusted higher still post-2018,” Union Gaming analyst Grant Govertsen said in a note.

Russia doesn’t impose taxes on gross gaming revenues, instead imposing monthly flat taxes on gaming devices.

Earlier this month, the Russian Duma approved on its first reading a draft bill that aims to hike the top levy per gaming table to 250,000 rubles (US$4,280), up from 125,000 rubles.

The draft bill also includes measures to raise the maximum tax levy on gaming machines in Russia from 7,500 rubles to 15,000 rubles ($257).

Summit, for its part, pointed out that “it is too early for the board of directors of the Company to predict whether the above proposed changes will become legally enforceable.”

It also tried to placate investors by saying that the company is constantly communicating with the Primorsky government on the matter, and reportedly has been assured that the government is keen to “maintain the tax rates at existing levels should the bill be enacted.”

The draft bill, however, is just one of the few headwinds that Summit is facing, said Govertsen, who also pointed out that illegal gambling remains a concern in Primorsky.

Summit is likely to “slow-play the development of Tigre de Cristal’s phase 2, which is slated to open in the second half of 2019” because of this problems, according to Govertsen.

“While there has been some enforcement against illegal gaming venues in much closer proximity to the population base relative to the company’s property, the vast majority of locals-oriented GGR is still being captured by illegal venues,” the analyst added.

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