Inside Asian Gaming

INSIDE ASIAN GAMING | Oct 2007 38 ry in the form of SJM and Galaxy.We’ll never knowwhat an LVS-Galaxy tie up would have produced as it withered on the vine when LVS looked more closely at the numbers in Macau and decided to go it alone. Melco International’s half year results statement to June 30 tries to address some of these investor questions by focusing on its wider work in developing entertainment and leisure related projects in Mainland Chi- na and the Asia Pacific region. The company devotes almost as many words to off balance sheet projects in these markets as it does to MI’s Macau liabilities. The new Melco projects in entertainment and leisure are designed to boost cash flow with relatively modest capital outlay, and to diversify Melco’s operations. The clear message to the equities markets is that ex- posure to Melco means exposure not only to a Macau gaming operator, but also to a company that knows China and is poised to take off in a domestic tourism market that the World Travel and Tourism Council says will be showing annualized growth of 9.1% between now and 2017. Melco’s first half results also highlighted another off balance sheet venture—PAL Development, a consultancy service for the growing market in legal sport lotteries on the mainland. Melco says it is also moving into gaming equipment supply in a tie up with US-listed VendingData Corporation (VDC), maker of card scanners, card shuf- flers and gaming chip cleaners. Under the deal, Melco, through its subsidiary Elixir Group Ltd, has bought 53% of a new share issue in VDC and converted VDC into a Mel- co subsidiary under the name Elixir Gaming Technologies Inc. Although these ventures are not yet making major contributions to the balance sheet, from an investors’ point of view they have the virtue of offering the potential of strong cash flow in what are essentially cash on delivery businesses, in rapidly expanding markets. PBL’s contribution to the party from an MPEL investor’s perspective is its strategy of moving away from its traditional asset base in low-growth Australian media and invest- ing instead in high-growth gaming opera- tions abroad. In Canada it has a joint venture with Macquarie Bank which recently paid A$855 million for Canadian Gateway, the owner and operator of nine casinos in British Columbia and the oil rich province of Alberta. PBL also has a 50% interest in Aspers Group, a UK-based operator of the famous Aspi- nalls casino in London and gaming clubs in Newcastle and Swansea.Gaming investment opportunities in Russia are also being con- sidered according to a Russian newspaper report in April 2006. New revenue streams from both parents will clearly help to support MPEL’s position until it gets enough revenue traction from its new Macau operations. Melco’s strategy appears to be to lever- age Melco’s cultural and business ties with China and add value to the Melco PBL casino operations by diversifying from pure casino development and operation. Melco-brand- ed holiday resorts in Mainland China have the potential to raise the profile of its Macau casino operations without breaking China’s rules on casino advertising. It may also cre- ate an LVS-style marketing machine that will cross-fertilise the businesses. Investors may well reward those com- panies willing to engage in merger and ac- quisition in China’s domestic entertainment and leisure sector while those assets are still competitively priced. Melco Results