Inside Asian Gaming

Gaming Research Macau, “Poipet isn’t contributing yet, but it does seem that the sister project in Pailin is starting to ramp up—$1.1 million in revenue in the first quarter of 2013 versus $1.8 million in all of 2012. Yes, Pailin’s revenues were down a bit sequentially from the fourth quarter, but they are still trying to figure out the market. I’ve been to Pailin and can speak to the strong demand story. I think Pailin, sooner rather than later, will prove to be a successful part of the EGT story. Same goes for Poipet, where the demand story is even stronger as it represents the closest legal gaming to Bangkok. It, of course, will take time to ramp up, but should get there quicker than Pailin.” NagaCorp also reported a few numbers in the first quarter that could indicate some weakness. While public floor gaming was up 22% year on year (according to unaudited operational results filed with the Hong Kong Stock Exchange) and EGM “bills in” were up 14%, junket VIP rolling volume was down 11% (it was up 16.9% in 2011 and 12.2% in 4Q 2012). Hotel occupancy was also off, though the rate charged was up. Analysts are mixed on the stock. Union’s Grant Govertsen says that the first quarter numbers should be adjusted to account for the king’s funeral and the leap year in 2012. When he factors them in, he comes up with only a 6% decline in VIP. He also believes that the company’s recent HK$1.21 billion fund-raising effort will significantly shore up the VIP side of the business. The money will go toward building a private airport terminal, improving airport transportation services, upgrading VIP rooms and marketing in the region. Others are in more of a wait-and-see mode. They believe that a lot rides on the ability of the company to effectively strengthen VIP—a part of the business that has been declining as a percentage of total revenues for a number of years. Naga would like to more than double VIP spending over a three-year period, but until progress is made, price targets for the stock will likely remain in the HK$6 range. “There’s no near-term reason to own until we see progress on the new VIP initiatives,” according to Michael Beer, an analyst at Citi. “The mass story is in the stock, and the VIP trends in the first quarter are concerning.” While labor disputes bring into doubt the low-cost element of the case for Cambodia, the country’s other advantages remain, including its very low gaming tax rate—NagaCorp pays an effective rate of 2%, while operators in Macau face 39%—and proximity to several Asian nations, including Vietnam, Thailand and China, where casinos are either banned or off limits to locals. Also, tourism is growing steadily, suggesting the soft 1Q performance could be temporary. Overall visitor numbers were up 17.8% year on year in the first quarter and 18.3% in March. Encouragingly, the major markets for gaming traffic are holding up nicely. Visitor arrivals from China were up 55.1% year on year in the first quarter and 60.5% in March, and arrivals from Thailand grew 31.4% in 1Q. Arrivals fromVietnam—the top source of visitors to Cambodia and players at NagaWorld—were up 1.8% in the first quarter and 7.8% in March. FEATURES At the end of February, an estimated 1,000 NagaWorld workers staged a strike demanding higher wages, the reinstatement of fired workers and the dismissal of a number of managers.