Inside Asian Gaming

19 18 and mass markets,we have explicitly forecast the growth of each segment separately. High roller market to drop to 4% Cagr We project the VIP market will experience a low rate of growth, averaging 4% through 2006-09 given its relatively higher penetra- tion compared to the mass market. More- over, current issues related to rising junket commission rates and tightened regulations on credit provision will hinder new players from entering this market.The surge in visita- tion from the mainland Chinese middle class population will contribute more to mass market rather than VIP growth. Accelerating mass market growth We believe the mass market still has much untapped potential, with adequate room for the coming pipeline of large scale casino resorts. We expect growth in mass market gaming to be driven by rising tourist arriv- als on the back of expansion of the wealth effect on the middle class in mainland China and improvements in tourism infrastructure. These two key drivers should encourage visi- tors to increase per capita gaming spend and lengthen visitor stay in the city. We forecast per capita gaming spend per day to grow at a Cagr of 6% from 2006-09 while average length of stay could increase from 1.3 to 1.7 days over the same period. As such, we esti- mate mass market gaming revenue to grow by 33% through 2006-09, with the mass mar- ket share of total gaming revenue climbing from 26% in 2004 to 52% by 2008. Backend loaded 2006 We project the addition of more than 1,000 gaming tables over 2006. Most of the new supply will come from new casino resorts scheduled to open in the second half of 2006 includingWynnMacau and Galaxy StarWorld, and the balance will be derived from casinos under the SJM umbrella, Galaxy’s city clubs chain and the Sands expansion. 2007-08: Transformation of Cotai We project a spike in the supply of gam- ing tables, with the addition of around 3,000 tables over 2007-08. Over half of this new supply will come from the opening of mega- size integrated resorts such as the Venetian Macau, Galaxy Mega, MGM Grand Paradise (a joint venture with Pansy Ho) and the Wynn expansion. In addition, the Melco/PBL JV is scheduled to launch the Crown Macau and City of Dreams in 2007 and 2008 respectively. The SJM pipeline includes the Grand Lisboa, Arc of Triumph,Ponte 16 and other upcoming casinos.Our projections are based on publicly announced projects, adjusted for our expec- tations on their likelihood of materializing. Al- though the potential for underestimation ex- ists, we believe the margin of error is minimal, as further projects are likely to be relatively small, and, in the case of major projects, the likelihood of completion before 2008 is low. Combining the market forces Given that we project a surge in industry Casino supply forecast (number of gaming tables) 7,000 6,000 5,000 4,000 3,000 2,000 1,000 – (No. of tables) 2004 2005 2006E 2007E 2008E 2009E SJM Wynn Resort MGM/Pansy Ho 1,100 1,400 2,600 4,300 5,400 6,700 Melco PBL Las Vegas Sands Galaxy 48% Cagr Source: Deutsche Bank 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 2006F 2007F 2008F Macau avg 11,700 12,200 11,600 10,800 10,100 8,800 6,400 4,700 4,600 VIP market 34,500 36,100 31,900 28,100 30,300 18,700 17,700 11,700 10,800 Mass market 5,300 5,700 6,000 6,100 5,400 4,700 3,400 3,200 3,200 Slot machines 122 146 144 139 140 136 140 100 100 Table win (US$/table/day) Source: Deutsche Bank Source: Macau Government tourist Office, Deutsche Bank AG Deutsche Bank - Macau Map Table win forecast 30,000 20,000 10,000 – 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 2006F 2007F 2008F (US$/table/day) 11,700 12,200 11,600 10,800 10,100 8,800 6,400 4,700 4,600 VIP market Macau avg Mass market Source: Deutsche Bank DB forecast