Inside Asian Gaming

inside asian gaming October 2017 14 bar in terms of investment levels for Korea … but I don’t expect the government to do something that rational.” Nevertheless, there remains cause for optimism. According to a recent survey of 1,000 Chinese gamblers conducted by financial services firm Morgan Stanley, intention to gamble in Korea has increased by three percentage points over the same time last year (24% compared with 21% in 2016) despite overall intention to visit Korea slowing from 34% last year to 25% in 2017 due to ongoing geopolitical tensions and Chinese restrictions on travel. “We think the survey results strongly support our key thesis that Chinese VIP (casino) recovery is faster than general inbound tourism,” Morgan Stanley surmises – a key factor given the 34.9% decline in VIP revenue at Korea’s foreigner-only casinos between 3Q14 and 1Q17. By comparison, mass fell only 8.0%. “VIP business has no visa or flight/accommodation reservation constraint – peer pressure on traveling to Korea is the main reason behind soft demand. In addition, the opening of new casinos is now better recognized by Chinese gamblers in Macau and this could be another reason behind the improvement in gambling intention, in our view.” The upshot is that Morgan Stanley predicts a full-year GGR decline of around 6% to KRW1.2 trillion (US$1.06 billion) for Korea’s foreigner-only casinos in 2017 on the back of flattening results through July and August, followed by 12% growth in 2018, 8% in 2019 and 14% in 2020 (to US$1.46 billion) when both Mohegan Sun and Caesars are due to open their integrated resorts. Morgan Stanley also predicts massively improved results for Paradise Co over the next 18 months as it continues to ramp up its Paradise City operations. In its research note on Paradise Co’s 2Q17 earnings report, released in August, analysts DS Kim and Shaun Zhang stated that the company’s “big Q2 earnings miss” was offset by July’s results which were “strong across the board – and this is more important.” “Drop grew 19% year-on-year to KRW477 billion – nearly ~30% above 2Q17 run-rate – led by accelerated ramp-up at Paradise City (where drop was up 29% over June numbers) and seemingly moderating cannibalization to existing casinos,” they said. “By segment, drop from China VIP fell only 6% year-on-year in July (vs -36% in Q2), while non-China VIP drop remained solid and up 39%. Though July could have benefited from summer seasonality and some pent-up demand, we think it is reasonable to think the absolute worst is probably behind us.” Morgan Stanley is predicting EBITDA growth outlook of 370% year-on-year for Paradise Co in 2018 and 25% in 2019, with Paradise City its key growth driver. Cover Story “According to a recent survey of 1,000 Chinese gamblers conducted by financial services firm Morgan Stanley, intention to gamble in Korea has increased by three percentage points over the same time last year despite overall intention to visit Korea slowing from 34% last year to 25% in 2017 Mohegan Gaming & Entertainment’s new CEO, Mario Kontomerkos