Inside Asian Gaming

INSIDE ASIAN GAMING | October 2011 6 CLSA Market Outlook In its latest authoritative report on the Macau gaming sector, leading regional independent brokerage and investment group CLSA Asia-Pacific Markets offers its industry outlook up to 2020. Among the notable forecasts offered by report authors Aaron Fischer, Richard Huang, Jon Oh and Clifford Kurz, Macau gaming revenue is expected to hit US$108 billion in 2020 S trong China-led gaming demand combined with tight supply of casino tables has resulted in a favourable industry landscape for Macau casino operators. Over the next decade, we forecast Ebitda [earnings before interest, taxes, depreciation, and amortisation] and net- profit Cagrs [compound annual growth rates] of 23% and 29%, respectively, for the industry. Rapid earnings growth will drive the market cap of the six listed gaming companies operating in Macau to US$387 billion by 2020, representing a 20% annual share-price return over the coming 10 years. Expect 11-25% growth We forecast Macau gaming revenue to grow by 20-25% in 2012-13 and 11-15% in 2014-20on increaseddiscretionary spending (on rising incomes) and booming outbound Chinese tourism, supported by significant infrastructure improvements. As of 2011, Macau has already emerged as one of the largest gaming markets in the world. We forecast its gaming revenue to hit US$34 billion this year, compared to about US$6 billion for Singapore and Las Vegas. The graph below compares Las Vegas and Macau’s gaming revenue. We can see that the enclave overtook the sin city in 2006 and was four times its size in 2010. The vast size, fast expansion and high profitability of Macau’s gaming sector lead many to question the sustainability of its growth. Chinese people’s love for gaming, stemming from a belief in luck, is the key cultural difference explaining their distinctive approach to gambling. Westerners like spending, however, on various items. In Las Vegas, gaming revenue only accounts for 40% of total casino income, while in Macau, it makes up 94%. Las Vegas casinos are generating US$16 billion in total revenue each year, while Macau casinos are closer to US$25 billion in 2010. The simple reason why non-gaming as a portionofMacau’s total will not approach the 60% level for Las Vegas operators is simply due to the absolute size of the market’s gaming revenue, which should reach US$34 billion in 2011. To achieve the same mix, this would imply non-gaming spending of US$51 billion—that is a lot of abalone, bird’s nest, Mouton Rothschild and luxury-goods items to bring home for friends and family. Also worth noting is that Las Vegas is