Inside Asian Gaming

INSIDE ASIAN GAMING | October 2011 8 only a small part of the US gaming industry (less than 10% of total revenue). We expect Macau to make US$34 billion in gaming revenue this year, compared to US$60 billion in the USA, making it about half the size of the whole US gaming market. With a much larger potential customer base (1.3 billion people in China versus a population of 0.3 billion in the USA) and a much stronger gaming appetite, we believe the size of Macau’s gaming industry could be amultiple of that of the USA’s in the long term. The world’s largest gaming market by 2015 We expectMacau to deliver US$65 billion of gaming revenue in 2015, surpassing the USA to become the world’s largest gaming market. By 2020, the figure should approach US$108 billion, nearly twice that of the USA. Stress-testing our growth estimates Our US$108 billion estimate for Macau might seem overly aggressive. However, excluding the US$22 billion from new Cotai projects, which help grow the market and are scheduled to be completed between now and 2020, the remaining US$53 billion increase is organic and implies 11% growth per annum. Our forecast assumes revenue growth of 10% for the VIP segment and 12% for the mass market and slot machines post 2014. We expect a slowdown in the VIP market as tables gradually approach maximum capacity. Tourist-arrival growth is also likely to slow from10% to 5% from2013, as the base continues to go up. Increasing visitor arrivals and gaming spending will contribute equally to our estimated 11% organic growth in gaming revenue. Note that we realise the growth rate will not be as steady as predicted and will depend on macro factors and the timing of various casino openings. To perform a sanity check on our forecast, we also analyse implied win per table. Our assumptions suggest win per table per day will enjoy a 9% Cagr between 2011 and 2020, from US$6,149 to US$13,821 (similar to that in 2002) in the mass market and from US$34,107 to US$81,078 in the VIP segment. Limited table supply in Macau ensures highearningsvisibilityandstronginvestment return for casino operators. However, it also restrains their topline growth. Over the Gaming-revenue growth Source: DICJ, State Gaming Control Board, CLSA Asia-Pacific Markets Casino revenue mix, 2010 Casino revenue, 2010 Source: DICJ, State Gaming Control Board, CLSA Asia-Pacific Markets past years, increasing bet size has been fuelling win per table and gaming-revenue growth. We do not believe average gaming spending per tourist can continue to grow at a 30-40% rate indefinitely and have been factoring in a slowdown in our forecast. If table supply were to grow faster, at say 10%, Macau would see much stronger growth in gaming revenue, as casino operators would have more capacity (gaming and hotels) to meet the robust Asian demand. Comparing with the broader consumer universe Our growth estimates also imply an Gross gaming revenue, 11CL (1) 2010 figures. Source: State Gaming Control Board, CLSA Asia-Pacific Markets CLSA Market Outlook