Andrew Lo, Chief Investment Officer and Executive Director of Hong Kong-listed Suncity Group, provides some unique insight into the ambitious expansion plans of Macau’s leading junket operator ahead of the planned 4Q19 opening of its first integrated resort, Hoiana, in Vietnam.
IAG: Suncity has been very active of late, planning a new travel app, investing in gaming businesses in Russia and Cambodia and of course preparing for the launch of Hoiana. Why has it become so important for Suncity to pursue such a diverse array of interests?
Andrew Lo: It’s true, we invest in lots of different products and most are not gambling. When we design an IR, the casino is the last part we have to worry about because we are not inventing any new baccarat games or blackjack games. A casino is a casino.
But how do you make people come to your IR? They will go into the casino anyway right? So that is the interesting point. We’ve been doing a lot of work on that because as you know, Vietnam is our first IR.
Two years ago, we launched a small business in Danang. Why did we start that two years ago? Because we are warming up the market for Hoiana.
I see non-casino guys trying to do a casino overseas and some of those casinos are not for locals. But a foreigner-only casino is totally different to a locals casino and if they start advertising only one week or two weeks before they open, I don’t think they can drive many people there no matter who their marketing director is.
Most have come from their home base casino, be it Macau or Singapore or wherever, and often their success is the market itself rather than their marketing.
But what is Suncity? We are a marketing company. And now we are moving to the next step which is as an IR investor and IR operator.
IAG: Suncity is expanding quite aggressively at the moment. You have a presence in Manila, Melbourne, Sydney, Phnom Penh, you’re opening in Vietnam with Hoiana and have a presence in Sihanoukville, Russia and Korea. What other places around the world would you be interested in?
AL: Our existing customers are from Asia – China, Korea, Taiwan. Therefore, for the sake of convenience in terms of traveling time, Asian countries are our current focus.
IAG: Does Australia count as Asia?
AL: Yes, and I recently received an email from the Gold Coast City Council about an opportunity there [Ed: The Queensland state government issued a call for tenders in March for a second IR to be developed on the Gold Coast [currently home to Star Entertainment Group’s The Star Gold Coast].
Anywhere in Asia that we’re legally allowed to have a casino, we would be interested.
IAG: Let’s talk about Hoiana, the first integrated resort of which Suncity Group will be an owner/operator. How will that look?
AL: Hoiana is quite different. For example, Hoiana will use [Hong Kong hotel group] Rosewood for our hotel management. But although we have a casino, it is a resort destination. It’s different to a casino in Macau. I don’t call the rooms above the casino a hotel, I call them “rooms for the players.”
It is totally different with check-in and check-out time, the quality of the service, the power of the General Manager. Having high standards is one of the most important things for a hotel brand.
IAG: What else can we expect from Hoiana?
AL: Our land is 986 hectares, 10 square kilometres, with four kilometres of beach. Phase 1 will use around 30% of our land including a 19-hole golf course, a beautiful clubhouse and then 100 villas. Sonia Cheng, the CEO of Rosewood, told us it is going to be the best in Asia.
On top of the casino podium we have two hotels. One is a new brand from Rosewood called KHOS. It’s high-end but targeting people in their 30s, with 300-something rooms. The other hotel we will call Hoiana Tower which is VIP suites, 100-something rooms.
There will be 16 restaurants in total to start with including seven in the casino area and nine in the hotel. We also have serviced apartments across the road, 270 units, which we sold out in four days in February without spending a cent on marketing.
We had some local people that enquired about buying some of the 100 villas but I wanted to sell them to our database because real estate is a one-time thing. Of course, you make money from the sale, but that’s it. I want to make money from our tables too, so I wanted to sell them to our database.
We will start selling those villas in January at our Grand Opening. We have a total of 100 villas but I already have 200 orders from our customers without them even seeing any pictures … or the price!
IAG: What will be the split between VIP and mass at Hoiana?
AL: Because we will only have 1,200 rooms at the start, I think 75% will be VIP.
IAG: Where will the mass customers come from?
AL: The whole area has about 5 million visitors a year – Chinese, Korean, Japanese – and the must-go destination, Hoi An Old Town, is just 15 minutes from where we are located, so I’m sure at night people will come and visit Hoiana.
And even though there is a Four Seasons Hotel and an Intercontinental, they don’t have much land – once they step out of the hotel they don’t have many entertainment facilities, but we’re different. We will become an entertainment hub. That is our direction.
We are not really interested in promoting the casino, we will promote entertainment. And then if people like playing a slot machine, go for it. Of course, we will also do a shuttle bus service from those other hotels.
IAG: Will you bring in other junkets to Hoiana?
AL: Yes. When we originally started designing a few years ago we had four junket rooms but then we changed it to seven rooms and moved the Suncity room to the ground floor. And we think that wherever we go, other junkets will follow. We have already discussed it with different junkets. We are filtering right now.
But likewise, if our competitors build a casino and invite us to open a junket room, we will join them.
IAG: Suncity recently signed an agreement with Golden Sun Sky to provide pre-opening and casino management services at a new US$360 million casino in Sihanoukville, Cambodia. What attracted you to Sihanoukville?
AL: Well there are two steps for our service. For pre-opening we have the consultancy service helping with casino layout, how to work with the hotels, how to work with IT and putting together the team – providing that service.
Once it opens we will go to a management agreement. We will take 3% of GGR and 5% to 6% of EBITDA. So roughly that’s equal to around 17 to 19% of the EBITDA.
IAG: What are your thoughts on the large-scale development currently taking place in Sihanoukville?
AL: When it first started being developed, these guys buying the property thought, “The rent can be HK$60 per square foot.” Well five years later it was still HK$60, 10 years later still HK$60. I think they skipped chapter one of the economics textbook – supply and demand.
But it doesn’t matter to me. Why? I’m only a manager. I take fees. The risk is on the master. But I told my boss that I want to take this opportunity because if someone tells you it’s Coca-Cola you might not believe them, but if 10 million people tell you it’s Coca-Cola you believe them. That’s what is happening in Sihanoukville and that’s why we signed a management contract with a 30% option at cost after three years.
We let someone else take the risk and we give ourselves an opportunity. We think Sihanoukville is the hottest opportunity in Asia right now.
IAG: How did Suncity’s investment in Summit Ascent, which holds a majority share in Tigre de Cristal in Russia, come about?
AL: They wanted to better understand the business so they said, “Can you come and join us? Do you see any synergy?”
They know we are the largest junket but we don’t have a junket room at Tigre de Cristal. Why? Well, I told them what is missing from the building, what they should do and not do.
I think the company is quite good. They pay low [gaming] tax and they are making a small profit every year so that is why I used company money to invest, around HK$810 million (Ed: Suncity Group acquired 29.77% in Summit Ascent Holdings Limited at an aggregate consideration of approximately HK$810 million).
IAG: So you see Russia as a good opportunity?
AL: You need to know what market you are selling to. If Russia wants to copy Macau then it will be dead. You need to find the selling point.
At Tigre de Cristal, if we’re doing F&B and entertainment in Phase 2, what is the selling point of Russia as a traveller? I think vodka, caviar, night time entertainment and that’s it.
So we said, “We need to target people staying a maximum of two nights and men who love night time entertainment, who love to drink. Come and visit a strip club, spend a bit more for the wine and food, keep some karaoke rooms for the Chinese. That’s the market.
IAG: Suncity has also become partners with Paradise Co in Busan, Korea. Can you explain more about that investment?
AL: Yes, we like the destination because in the neighbourhood there is going to be a huge 6-star hotel, a shopping mall and commercial buildings so I think it will attract a lot of tourists.
After Korea’s troubles with China that affected tourist numbers a few years ago it has rebounded, but not that well in regards to the number of visitors, so that’s why it was a good time to negotiate a price with Paradise. It’s an investment for our listed company.
We want to tell the market a few things – first, that Suncity has the ability to get a license to design, to build, to operate and get good numbers. Second, that we can invest and buy out existing buildings. But after investing, marketing and operating, give us two quarters and you will see some big growth. If these two things happen we think our stock price will go up a lot, so that is our direction.
One other thing is generating our database. Right now our only window of opportunity is to generate our VIP database but if we run the whole IR we can generate a slots database, a different regional database, so if you’re Korean we bring you to Vietnam for golfing, if you’re Vietnamese and have never seen snow, we bring you to Russia.
Having access to different regions gives us more and more choices, so that is our plan.