Inside Asian Gaming

INSIDE ASIAN GAMING | December 2012 20 A ccording to a reported released by Citi Research (a division of Citigroup Global Markets Inc) in the wake of third-quarter results released by NagaWorld’s Hong Kong- listed operator, NagaCorp (3918.HK) , the casino’s mass drop rose 32% year-on-year in Q3 2012, while slot handle increased 31% (vs. 37% and 23%, respectively, in the first half of the year). Although VIP rolling volume was up 18% year to date in the first nine months of 2012, volume declined modestly in 3Q, which according to the report was “similar to the sharp deceleration we’ve observed in Macau. However, with over 75% of earnings likely derived from mass-market operations, we anticipate minimal earnings drag from weak VIP trends.” It adds: ”With a number of new property additions in 4Q (including 110 new hotel rooms in the third hotel block, the addition of Saigon Palace, adding nine gaming tables and 150 slots, and five VIP suites), Naga is well positioned to generate continued earnings growth.” NagaCorp Chairman Timothy McNally said: “We’re pleased with our numbers which show continued, steady growth. Quite honestly, we’re not impacted by what is going on in Europe, North America or in China but we’re definitely still very pleased with double digit growth. We’re very focused on Indochina. If you look at tourism numbers coming into Cambodia, the figures are up 1.7 million in the first half of 2012—that’s a 28% growth, so we’re seeing a lot of growth in Cambodia and it’s coming in not only from Vietnam but from Korea, Laos and all over.” But Vietnam and Thailand—with their fast growing economies and combined population of almost 160 million—are clearly Naga’s main sources of visitation and primary target markets, especially in the mass segment. “In May 2012, we opened our first office in the business district of Ho Chi Minh City to facilitate our sales and marketing efforts in Vietnam as well as an office in Bangkok,” according to Mr McNally. “These physical offices are critical to our growth strategy within Indochina and positioning ourselves as the region’s entertainment capital. We have also launched wide-reachingmarketing and branding campaigns in both of these markets. We believe this will build further NagaWorld’s awareness and critical mass in two of our key target markets.” Meanwhile, the soon-to-open Saigon Palace mass gaming area “will cater specifically to the needs of our Vietnamese clientele,” according to Naga. The property has seen a 25% year-on-year increase in visitation in the first nine months of 2012, largely driven by a 27% increase in Vietnamese visitors to Cambodia, aided by a new luxury coach service between Phnom Penh and Ho Chi Minh City, launched on 18th May jointly by the Cambodian Tourism Ministry and Naga. Among NagaWorld’s other revenue-boosting measures over the past year, Mr McNally pointed out: “In February 2012, we launched NagaRock, a lifestyle gaming, entertainment and dining venue targeted towards higher-end mass-market customers. In June 2012, we launched the Rapid 2 gaming area with 92 machines, after our proven success of the Rapid 1 gaming area in the second half of 2011. These rapid gaming areas are popular due to their low-scale options of table gaming. On the junket business, our conservative credit policy, relatively low table limits, and higher rolling commissions to junket operators continues to drive momentum.” Mr McNally added: “Long term, the completion of Naga 2 will transform NagaWorld into a truly integrated gaming and entertainment destination in Indochina. This will further enable us to offer products and services to the growing economies in the region. This will also benefit Cambodia as our host nation, and in turn, deliver value to our shareholders.” Poised For Continued Growth Driving visitation—NagaWorld bus service operating between Ho Chi Minh and Phnom Penh Cambodian International Tourist Arrivals —Top Ten Markets of Origin (Jan – Aug 12) Source: Cambodian Ministry of Tourism Statistics Report by Entertainment Gaming Asia (EGT) in May this year, and EGT’s plans to open another at Poipet. As EGT is a supplier of electronic gaming machines to Naga, this raises the possibility of EGT poaching customers from Naga. Whether this actually happens, the optics are bad. The EGT concession at Naga is up in 2015 and represents a major part of the US-listed company’s business. Naga executives expressed displeasure, but did not venture to say exactly how they would respond in 2015. In the past few years, Naga has cemented its position through pragmatism, building its operation by focusing on what works and reducing risk where possible. This has left it in good stead for troubles ahead. As China weakens, place likeMacau, which are focused more on high-end China VIP business, could get hit. Nagamight find its lower-endstrategy and its balanced player portfolio resilient in a challenging environment. FEATURES