IAG 2006-04-05 - Apr- May - page 16-17

15
14
for gaming supplierswe’d obviously look at both table and slotma-
chinesupplydata. Webelieve this isparticularlyexciting forSHFL, IGT
andWMS inour coverageuniverseas the latter haveorwill have slot
machines in local language toofferwhile SHFLhas an abundanceof
table,multi-player stations,andutilityproducts to install.
Source:Company reportsandPrudential EquityGroup,LLCestimates.
Source:Company reportsandPrudential EquityGroup,LLCestimates.
Figure1.MacauCasinoPipeline
Figure2. MacauSupplyGrowthThrough2010
2H06
1H07
2H07
1H08
2H08
2009
2010
Total PF
NewSupply
914
546
1,658
940
600
1,530
1,900
9,845
GrowthY-O-Y
52%
20%
52%
19%
10%
24%
24%
460%
NewSupply
1,900
1,100
8,590
2,500
4,000
9,250
14,300
45,445
GrowthY-O-Y
50%
19%
126%
16%
22%
42%
46%
1,094%
NewSupply
1,100
800
6,227
5,300
5,000
6,200
10,612
41,091
GrowthY-O-Y
19%
12%
80%
38%
26%
26%
35%
602%
2H06
StarWorld
SandsPhase2
WynnPhase1
2-3 Mocha
SlotOutlets
Greek
Mythology
Phase2
1H07
Fisherman’s
Wharf
Gaming
Grand
Lisboa
Grand
Waldo
2H07
WynnPhase2
MGMGrand
CrownTaipa
Venetian
Four
Seasons
Far East
Consortium
1H08
Arcde
Triomphe
Shangri-La
Sheraton
Galaxy
Mega
2H08
CityofDreams
Hilton
Regal
2009
Shun-Tak
NamVan
Oceanus
WynnCotai
ShunTak
Cotai
2010
MGMGrand
Phase2
Fortuna
Global
Ponte16
WynnCotai
MGMCotai
booths) inorder togetaround thecountry’sbanongaming.Pachislot
machinesaresimilar toWesternslotmachines,but thekeydifference
is that players can control when each individual reel stops, implying
skill aswell as chance canaffect thepayout of tokens (also indirectly
redeemed for cash).
The Japanese government estimated pachinko and pachislot
raked in over US$300 billion in revenue in 2004 – nearly four times
the revenue from legal casinogamingworldwide.
Japan’s pachislot market is regulated by local police (Hotsukio),
and regulationsareevolving inorder to reduce thegamblingorient-
ednatureof thegamesand increase theentertainmentvalue so that
peoplewill lose lessmoney (i.e.onaverageconsumersbringUS$300-
$500 to gamble in order to have a chance at the biggest payouts
which approximate US$1,000). Newmachines will payout less and
require less coin-in (US$100 of coin-in for about US$300 in payout).
Basically,playershave timebased loss limits thataredeclining follow-
ing the adoption of the new Regulation 5 governing themachines.
Reg5was introducedon1 July2004,andall Reg4machinesmustbe
phasedout fromhallsby1 July2007.
•WemetwithAruze,SegaSammy (SGAMY),IGTJapan,andvisited
a number of Pachislot/Pachinko parlors in Tokyo. The point of the
tripwas tobetterunderstand thedynamicsof thePachislotmarket in
advanceof the requiredshift fromReg4 (4.5and4.7) toReg5games.
This is an increasingly importantmarket for IGT (with Sammy as
itspartner),andamarket thatwebelieveWMSwill eventuallyen-
terwithAruzeasapartner. Thougha larger reportwill follow,the
followingarekeypoints.
• The installed base of Pachislot is approx. 1.89million units
(and an estimated 3million Pachinkomachines) across approx.
15,000 parlors in Japan. Approx. 1.7million units are sold each
year. Threemajor operators (Maruham,Gaya, andDinam) own a
total of 450-600parlors ingreat locations and the rest aregener-
ally small facilities run by about 5,000 owners. Games hold ap-
prox.8-9%. Revenueper unitwas approx.US$170 at thepeakof
Reg 4.5 anddropped to approx.US$125 following the introduc-
tionof Reg4.7. Games cost approx.US$3,000-3,500.
• Approx. market share: Sega Sammy 40%, Olympia 16%,
Yamasa 9%,Taito 8%, Aruze 5% (didn’t have a Reg 4.5 or 4.7 ap-
provedgame).
• Hotsukiohas limited capacity to approve Reg 5games and
can approve about 9perweek. Thiswill expandonApril 1. Cur-
rently,Aruzehas10Reg5approvals– themost,whileSammyhas
approx.7and IGThas1-2.
•Wehighlight Aruze as an interesting company listed locally
on JASDAQ. Aruze whosemarket cap is approx. US$1.5 billion
owns nearly 25% ofWYNN, worth approximately US$1.6 billion
Notes From Japan
The last issueof
InsideAsianGaming
featureda reportonJapan’shuge
pachinko industry.
Pachinkomachines take the shapeof vertical pinball-likedevices,
with steel balls falling intooneof several slotswhicheither retain the
balls or pay out a prize of more balls – redeemed for prizes, which
in turn canbe redeemed for cash at covert kankin (prize redemption
propertieswithPansyHo, the JV’s sub-concession fee toSJM (US$200
million+US$60million landpurchase) coversall futureprojects.
• The IVS program that currently allows for individual visitation
from230millionChinesecovers less than10%ofChinesecities.While
theprogramwill continue toexpand thequalification isbasedondis-
posable incomemetrics of each city. With18million visitors in2005,
we’ve yet to see the real strengthof the IVS–which shouldevidence
itself over thenext five years in conjunctionwith infrastructureproj-
ects in thepipeline.
•We sawAruze’s transparent LCDmechanical reel product in the
field (andat theirHQ inTokyo). It isperhaps themost compelling slot
productever introduced.Thisproduct transforms traditionalmechan-
ical reelsby layeringovervideocontent.WMShas theUS rights to this
technologywhich is planned for a Fall 2006 launch. Inour view this
product could steal the show at G2E 2006 and bolster participation
placements inF07.
Notes From Singapore
•We visited Singapore and saw theMarina Bay sitewhich is the
first of the 2 Integrated Resorts (IR’s) being tendered in thewealthy
city state. Somebasicobservations:
i) the51acre,US$721million siteappears relativelynarrow;
ii) thispartofMarinaBay iscurrentlynotpedestrianaccessible;
iii) significant infrastructure is needed inorder tomake this a
viablesite inourview - i.e.light rail (planned)andhighwayexit
ramps -due to its locationnext toamajorhighway.
• Sentosa Island appears tobe amorenatural site for an IR than
Marina Bay. We visited the site on Sentosa that is anticipated tobe
the ultimate location of the second IR. Its location is quite conve-
nient from the city, more convenient than is commonly believed.
This isachievedviaacoupleminutecaror taxi rideover a toll bridge
named Sentosa Gateway Avenuewhich is essentially in downtown
Singapore. The site is to thewest of thebridge and is notwalkable
(inour view) to anyof the3major beaches on Sentosa (Siloso,Pala-
wan,Tanjong).
Other FieldNotes FromMacau
• Lisboa, SJM’s incumbentmarket share leading casino, seems to
be losing significant massmarket share to LVS’s Sands, and perhaps
someVIPplay toGalaxyWaldo.
• SHFL’sMegaStarmulti-player product appears tobeexperienc-
ing significant demand inMacau. This includes its Sic Bo andBacca-
rat platforms. Webelieveplacementswill continue to ramp inMacau
given that it requires no dealer – we see skilled labor becoming an
increasing issue inMacaugiven theworsening labor crunch.
•Wecameacross IGT’sfirstattemptat local language slotproduct
inMacau. Thisshellfish themedmechanical reelwasexperiencing tre-
mendousplaydespite theunfavorable locationof both thebankswe
observedon thecasinofloor.
•We believeWynnMacau plans to target initial gaming revenue
mixof70%massmarketand30%VIP,withaconsolidated revenuemix
of 85% fromgamingand15%derived fromnon-gaming.
•By2009a JVbetweenShunTak (PansyHo) and HongKongLand
Holdings’ plans to open an 800,000 sq. foot retail mall (and second
MandarinOriental hotel) attached toMGMMacau,whichwebelieve
should help MGM andWynn volumes. We don’t believe this retail
square footage is/will impact LVS’s lease strategy for Cotai given fa-
vorablepointof entrygeography.
• Even though MGMmay develop 2 or more additional Macau
Tables -1,757
(current)
Slots
-3,805
(current)
HotelRooms
-5,852
(current)
Period
Macau Tower
MarinaBay
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