Company Report

November 20, 2012

Asia Entertainment & Resources Ltd.

Results leave thesis intact; Maintain Buy; Lowering Estimates
Our Call 3Q12 results leave our Buy conviction unchanged. While AERL offered little guidance for more aggressively loosening its purse strings to its junket agent network, it continues to generate visible, underappreciated free cash flow for its expanding agent network and for dividend payouts to investors. It has also begun to more actively repurchase shares. 3Q12. EPS of $0.31 compared to our $0.35 and consensus of $0.33. AERL reports its rolling chip turnover on a monthly basis, so 3Q12 top-line results were essentially known into the print. The key delta relative to our forecast was higher than forecasted commissions to junket agents and D&A expense. Nonmarker or cash agents those not requiring credit from AERL comprised a more substantial portion of its agent commission mix, resulting in the higher than anticipated commissions. A key positive 3Q12 metric was AERLs revenue share rate with the casino, which we calculate was ~45.5%, the equivalent of nearly 1.30% in fixed commission (versus the 1.25% Government capped rate). Growth. Management reconfirmed a judicious stance toward extending cage capital to junket agents until it gauges a more certain macro-backdrop and other positive read-through indicators via its agent network. We continue to believe AERLs proactive reduction of cage capital risk and simultaneous expansion of its junket agent footprint reflects a prudent, LT commitment to shareholders and sets up a more stable platform for accelerated growth in the intermediate-term. Estimate Changes. CY12/CY13/CY14 EPS to $1.56/$1.82/$2.32 from $1.57/ $2.06/$2.52. Our lowered EPS outlook stems from fewer turns of cage capital per month and higher commissions to junket agents than previously modeled, partially offset by a higher casino revenue share rate. Our 4Q12 goes to $0.51 from $0.48, reflecting higher than theoretical October hold offset by lowered November and December assumptions (the suspension of CY12 rolling-chip turnover guidance with a month and a half remaining in the year was slightly disappointing though understandable, in our view). Our new forecast does not account for share repurchases, which should accelerate from 3Q12 levels at or near current equity prices (~265k shares repurchased in its 3Q at $3.67 per share). Maintain Buy. AERL indicated it could have a progress update on its proposed HK Listing in the near-term, a catalyst for shares in our view. We believe AERLs CY13 PE of 1.9x, projected 8.5% yield, transparency measures, and management's conservative commitment to deploying shareholder capital, offer substantial upside to yesterday's closing share price.

Buy
AERL Price: Close $3.43 Price Target $16.00
Leisure & Entertainment
David Bain (949) 721-6651
dbain@sterneagee.com

Company Data
Rating Price: Close Price Target 52-Week Range Market Capitalization (M) Shares Outstanding (M) Avg. Daily Vol. (000) Dividend Dividend Yield Assets (M) Buy $3.43 $16.00 $2.40 - $7.24 $153.2 42.5 106.0 $0.28 8.2% $328.4

Price Performance FYE Dec

EPS ($) Q1 (Mar) Q2 (Jun) Q3 (Sept) Q4 (Dec) FY EPS P/E

2012E (Prev)

2012E (Curr)
0.40A 0.34A 0.31A 0.51 1.56 2.2x

2013E (Prev)
0.46 0.47 0.54 0.58 2.06

2013E (Curr)
0.40 0.39 0.49 0.54 1.82 1.9x

2014E (Prev)
0.58 0.58 0.65 0.71 2.52

2014E (Curr)
0.51 0.50 0.62 0.69 2.32 1.5x

9 8 7 6 5 4 3 2 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Asia Entertainment & Resources Ltd. The Consumer Discretionary Select Sector Index (CDI)

0.35 0.48 1.57

Source: FactSet

Important Disclosures regarding Price Target Risks, Valuation Methodology, Regulation Analyst Certification, Investment Banking, Ratings Definitions, and potential conflicts of interest begin on Page I of the Appendix Section. 800 Shades Creek ParkwaySuite 700Birmingham, AL 35209205-949-3500
Sterne, Agee & Leach Inc. is Member NYSE, FINRA, SIPC

November 20, 2012

Quarterly Income Statement

($millions) REVENUE Cage Capital Est. Turns per month Est. Rolling Chip Turnover % seq. % yoy. Fixed Commission Operation Roll from fixed commission operation % of total rolling chip win Revenue from fixed Commission % commission rate Revenue S hare Operation Win from revenue share operation % of total rolling chip win Gross Revenue from revenue share % VIP hold % revenue share rate Gross Revenue Est. Adjustment % of gross revenue Revenue from VIP gaming operations % yoy. EXPENS ES Commission to Junket agents % of Rolling Chip Turnover SG&A % of total revenue Special Rolling Tax % of total revenue EBITDA % margin % of Rolling Chip D&A Income including pre-acquisition profit Prior owners' interest in pre-acquisition profit* Net Income Attributable to ordinary shareholders % Margin Other Comprehensive Loss Foreign Currency Translation adjustment Adjusted Income Adjusted EPS % yoy. Ave shares outstanding CY11 256.20 8.77 19,928.8 91% 91% 18,897.9 94% 236.2 1.25% 1,031.0 6% 12.6 2.85% 43% 248.9 0.0 0% 250.6 97% 156.0 0.78% 16.5 7% 2.0 0.8% 76.1 30% 0.38% 5.1 71.0 0.0 76.1 30% 0.000 71.2 1.82 18% 39.1 Q1:12 269.60 7.52 5,384.0 -3% 32% 5,384.0 100% 67.3 1.25% na na na na na 67.3 0.0 0% 67.3 31% 43.5 0.81% 4.8 7% 0.5 0.8% 18.4 27% 0.34% 1.3 17.1 0.0 17.1 25% 0.325 17.1 0.40 15% 42.6 Q2:12 266.41 5.70 4,682.0 -13% 8% 4,682.0 100% 58.5 1.25% na na na na na 58.5 0.0 0% 58.5 6% 38.1 0.81% 4.4 7% 0.5 0.8% 15.6 27% 0.33% 1.3 14.3 0.0 14.3 24% 0.000 14.3 0.34 -32% 42.5 Q3:12 265.10 5.02 4,030.0 -14% -32% 2,781.0 69% 34.8 1.25% 1,249.0 31% 19.3 3.39% 45.5% 34.8 0.0 0% 54.03 -27% 34.5 0.86% 4.1 8% 0.4 0.7% 14.9 28% 0.37% 1.7 13.3 0.0 13.3 25% 0.000 13.3 0.31 -37% 42.4 Q4:12E 283.06 5.52 4,555.2 13% -18% 0.0 0% 0.0 1.25% 4,555.2 100% 68.4 3.32% 45.5% 68.4 0.0 0% 68.4 -2% 40.0 0.88% 4.5 7% 0.5 0.8% 23.4 34% 0.51% 1.4 22.0 0.0 22.0 32% 0.000 22.0 0.51 18% 43.2 CY12E 283.06 6.35 18,651.2 -6% -6% 15,628.0 117% 160.6 1.25% na na na 2.85% 45.0% 229.0 0.0 0% 248.3 -1% 240.0 0.83% 17.9 7% 1.9 72.3 29% 0.39% 5.6 66.7 0.0 66.7 27% 0.000 66.7 1.56 -14% 42.7 Q1:13E 289.12 6.23 5,435.2 19% 1% 0.0 0% 0.0 1.25% 5,435.2 100% 70.5 2.85% 45.5% 70.5 0.0 0% 70.5 5% 46.7 0.86% 4.5 6% 0.5 0.8% 18.7 27% 0.34% 1.4 17.2 0.0 17.2 24% 0.000 17.2 0.40 -1% 43.3 Q2:13E 307.13 5.90 5,331.2 -2% 14% 0.0 0% 0.0 1.25% 5,331.2 100% 69.1 2.85% 45.5% 69.1 0.0 0% 69.1 18% 45.8 0.86% 4.5 7% 0.5 0.8% 18.2 26% 0.34% 1.4 16.8 0.0 16.8 24% 0.000 16.8 0.39 15% 43.3 Q3:13E 323.64 6.53 6,256.7 17% 55% 0.0 0% 0.0 1.25% 6,256.7 100% 81.6 2.85% 45.8% 81.6 0.0 0% 81.6 51% 53.8 0.86% 4.5 6% 0.6 0.8% 22.7 28% 0.36% 1.5 21.2 0.0 21.2 26% 0.000 21.2 0.49 56% 43.3 Q4:13E 348.11 6.70 6,824.8 9% 50% 0.0 0% 0.0 1.25% 6,824.8 100% 89.5 2.85% 46.0% 89.5 0.0 0% 89.5 31% 58.7 0.86% 4.5 5% 0.7 0.8% 25.6 29% 0.37% 1.5 24.1 0.0 24.1 27% 0.000 24.1 0.54 7% 44.5 CY13E 348.11 6.34 23,848.0 28% 28% 0.0 100% 0.0 1.25% 23,848.0 100% 305.9 2.85% 45.0% 305.9 0.0 0% 305.9 23% 205.1 0.86% 18.0 6% 2.4 0.8% 85.2 28% 0.36% 5.9 79.3 0.0 79.3 26% 0.000 79.3 1.82 17% 43.6 Q1:14E 353.01 6.11 6,569.6 -4% 21% 0.0 0% 0.0 1.25% 6,569.6 100% 86.1 2.85% 46.0% 86.1 0.0 0% 86.1 284% 56.5 0.86% 4.5 5% 0.7 0.8% 24.5 28% 0.37% 1.6 22.9 0.0 22.9 27% 0.000 22.9 0.51 29% 44.5 Q2:14E 378.94 5.78 6,424.6 -2% 21% 0.0 0% 0.0 1.25% 6,424.6 100% 84.2 2.85% 46.0% 84.2 0.0 0% 84.2 273% 55.3 0.86% 4.5 5% 0.7 0.8% 23.8 28% 0.37% 1.6 22.3 0.0 22.3 26% 0.000 22.3 0.50 29% 44.5 Q3:14E 394.54 6.47 7,596.7 18% 21% 0.0 0% 0.0 1.25% 7,596.7 100% 99.6 2.85% 46.0% 99.6 0.0 0% 99.6 275% 65.3 0.86% 4.5 5% 0.8 0.8% 29.0 29% 0.38% 1.6 27.4 0.0 27.4 28% 0.000 27.4 0.62 26% 44.5 Q4:14E 422.80 6.70 8,300.7 9% 22% 0.0 0% 0.0 1.25% 8,300.7 100% 108.8 2.85% 46.0% 108.8 0.0 0% 108.8 258% 71.4 0.86% 4.5 4% 0.8 0.8% 32.1 29% 0.39% 1.6 30.5 0.0 30.5 28% 0.000 30.5 0.69 27% 44.5 CY14E 422.80 6.26 28,891.7 21% 21% 0.0 0% 0.0 1.25% 28,891.7 100% 378.8 2.85% 46.0% 378.8 0.0 0% 378.8 1208% 248.5 0.82% 18.0 5% 3.0 0.8% 109.3 29% 0.38% 6.2 103.1 0.0 103.1 27% 0.000 103.1 2.32 27% 44.5

Source: Company reports and Sterne Agee estimate

Page 2

November 20, 2012

APPENDIX SECTION
Company Description:
Macau licensed casino operators grant AERL exclusive use of VIP gaming rooms within their casino facilities and AERL promotes and manages its own network of junket agents and players to optimize the casino gaming within the rooms. In return, AERL is paid on volume-based commission or a share of the gaming win. ~85% - 90% of VIP player chip volume in Macau casinos is generated utilizing the room promoter system.

IMPORTANT DISCLOSURES: Regulation Analyst Certification:

I, David Bain, hereby certify the views expressed in this research report accurately reflect my personal views about the subject security(ies) or issuer(s). I further certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by me in this report.

Research Disclosures:
Sterne, Agee & Leach, Inc. makes a market in the following subject company Asia Entertainment & Resources Ltd. Sterne, Agee & Leach, Inc. provided and received compensation for providing investment banking services for the following subject company within the past 12 months: Asia Entertainment & Resources Ltd.. Sterne, Agee & Leach, Inc. provided and received compensation for providing non-investment banking securities related services for the following subject company within the past 12 months: Asia Entertainment & Resources Ltd.. Sterne, Agee & Leach, Inc.'s research analysts receive compensation that is based upon various factors, including Sterne, Agee & Leach, Inc.'s total revenues, a portion of which is generated by investment banking activities. Sterne Agee & Leach, Inc. expects to receive or intends to seek compensation for investment banking services from the subject company and/or companies in the next three months.

Price Target Risks & Related Risk Factors:

Investment risks associated with the achievement of the price target include, but are not limited to, a company's failure to achieve Sterne, Agee & Leach, Inc., earnings and revenue estimates; unforeseen macroeconomic and/or industry events that adversely affect demand for a company's products or services; product obsolescence; changes in investor sentiment regarding the specific company or industry; intense and rapidly changing competitive pressures; the continuing development of industry standards; the company's ability to recruit and retain competent personnel; and adverse market conditions. For a complete discussion of the risk factors that could affect the market price of a company's shares, refer to the most recent Form 10-Q or 10-K that a company has filed with the Securities Exchange Commission.

Company Specific Risks:

Risks to AERL include softness in the Chinese economy; unanticipated Mainland Chinese government intervention/regulation, including visa controls or other aspects negatively impacting visitation or patron spend in Macau; unanticipated Macau Government legislation; and/or the potential for higher junket operator commissions paid by promoters.

Valuation Methodology:
Methodology for assigning ratings and target prices includes qualitative and quantitative factors including an assessment of industry size, structure, business trends and overall attractiveness; management effectiveness; competition; visibility; financial condition; and expected total return, among other factors. These factors are subject to change depending on overall economic conditions or industry or company-specific occurrences. Sterne, Agee & Leach, Inc., analysts base valuations on a combination of forward looking earnings multiples, price-to-revenue multiples, and enterprise-value-to-revenue ratios. Sterne, Agee & Leach, Inc., believes this accurately reflects the strong absolute value of earnings, the strong earnings growth rate, the inherent profitability, and adjusted balance sheet factors. Additional company-specific valuation methodology is available through Sterne, Agee & Leach, Inc.

Company Specific Valuation:

Our valuation is based on a multiple of earnings per share.

Definition of Investment Ratings:

BUY: We expect this stock to outperform the industry over the next 12 months. NEUTRAL: We expect this stock to perform in line with the industry over the next 12 months. UNDERPERFORM: We expect this stock to underperform the industry over the next 12 months.

Appendix Section, Page I

November 20, 2012 RESTRICTED: Restricted list requirements preclude comment.

Ratings Distribution:
Rating Category Buy Neutral Underperform Count 228 225 18 Percent 48.41% 47.77% 3.82% Count 17 14 0 IB Serv./ Past 12Mos. Percent 7.46% 6.22% 0.00%

ADDITIONAL INFORMATION AVAILABLE UPON REQUEST: Contact Robert Hoehn at 1-212-338-4731. Other Disclosures: Opinions expressed are our present opinions only. This material is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as such. Sterne, Agee & Leach, Inc., its affiliates, or one or more of its officers, employees, or consultants may, at times, have long or short or options positions in the securities mentioned herein and may act as principal or agent to buy or sell such securities. Copyright 2012 Sterne, Agee & Leach, Inc. All Rights Reserved.

To receive price charts or other disclosures on the companies mentioned in this report, please visit our website at https:// sterneagee.bluematrix.com/sellside/Disclosures.action or contact Sterne, Agee & Leach, Inc. toll-free at (800) 240-1438 or (205) 949-3689.

Appendix Section, Page II

Founded in 1901, Sterne Agee has been providing investors like you with high-quality investment opportunities for over a century. During the early years, our founders prominently established themselves in the financial securities industry in the southeastern United States. Today, we have expanded to serve all regions of the country. Sterne, Agee is headquartered in Birmingham, Alabama with offices in 22 states. Sterne Agee is one of the largest independent firms in the country. Sterne, Agee & Leach, Inc. is a division of Sterne Agee Group, Inc., which also includes The Trust Company of Sterne, Agee & Leach, Inc.; Sterne Agee Asset Management, Inc.; Sterne Agee Clearing, Inc.; and Sterne Agee Financial Services, Inc.www.sterneagee.com

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