Inside Asian Gaming

inside asian gaming September 2014 32 bottom line was strong, with EBITDA up 3.6% to $107.5 million on improved margins, recovering from a promotion spending spree to counter Solaire’s opening last year, which drove a 24.7% increase in net income. The resort is undergoing a $650 million expansion that will “effectively double what we have,” Mr Sian says. The phased project, to be completed by 2017, will add 1,100 rooms to the current 1,200 and will include two international hotel brands, a convention center, plus additional retailing and gaming facilities. To help finance those improvements, Mr Sian successfully shepherded Travellers onto the Philippines Stock Exchange last November. Originally planned to raise US$1 billion, the IPO was delayed and cut back to $450 million. The smaller raising hasn’t changed the RWM expansion program, but the company remains cagey about its Entertainment City plans. The $1 billion IR, known as Resorts World Bayshore, isn’t expected to open before 2017. Some observers believe Philippine gaming revenue will have to improve a lot more than the 10% increase last year to convince Travellers that investing there won’t cannibalize RWM. So while he has a lot of his own businesses to watch, expect Mr Sian to keep an eye on the Entertainment City openings later this year of City of Dreams Manila and Solaire’s Phase 1A expansion. Chen Lip Keong founded Cambodia’s NagaCorp in 1995 and as the largest shareholder with an estimated 41.7% of the stock it’s made him a US dollar billionaire. He is not only aggressively building out the company’s vaunted NagaWorld monopoly in Phnom Penh with Naga2—and there’s talk of a Naga3—but he is also taking aim at regional opportunities. NagaWorld began modestly on a barge in the Mekong River, but everything changed when Dr Chen—a Malaysian citizen who trained as a medical doctor—managed to secure a monopoly on gaming within 200 kilometers of Phnom Penh and won significant tax concessions from the Cambodian government. It is one thing to negotiate a sweet deal in a developing country and another matter altogether to make sure the deal sticks and the authorities respect and help enforce it, but Dr Chen enjoys the confidence, trust and cooperation of the government, and he’s been able to keep the capital’s lucrative market to himself. One of the keys has been his determination to keep NagaCorp’s operations well above board, giving the company access to international capital markets—it was the first Cambodian company to list on the Hong Kong Stock Exchange—and he has been scrupulous about keeping investors and analysts informed and maintaining a dialogue with stakeholders. His decision to hire Timothy McNally, a former FBI agent and security consultant, as chairman of the board in 2005 sent a clear message that Naga prioritizes transparency and adherence to corporate governance and anti-money laundering best practices. NagaWorld, in the meantime, has had great success pursuing an aggressive regional mass-market strategy, bringing players in on charter buses from Vietnam—whose citizens are prohibited from playing in casinos at home—and opening promotional offices in Bangkok and Ho Chi Minh City. At the same time, the company has been honing its VIP strategy, attracting high-end customers who would not qualify as VIPs in Macau and offering far higher junket Chen Lip Keong CEO and Executive Director NagaCorp commissions, made possible by Cambodia’s much lower effective gaming tax rate. The results have been impressive. Naga has posted a compound annual growth rate for revenue over the past four years of 31% and a CAGR for gross profit of 53%. At the end of 2013, the property had 172 gaming tables and 1,543 electronic gaming machines. It also had a 700-room hotel and 25,000 square meters of meeting and other public spaces. Dr Chen and his team are now working to extend that growth into the future, and they are doing so while facing headwinds. In 2013, the company was beset by strikes as workers demanded better pay; staffing costs increased considerably in 2013 over 2012. Meanwhile, political instability in Cambodia around the time of the 2013 elections cast a shadow over the country’s fast-growing tourism sector, and a 6.4% drop in NagaWorld’s H1 2014 mass-market revenue contributed to the stock’s fall from recent highs. Still, analysts remain positive, and largely because of Dr Chen’s grand plans for the future. Naga2, which should be completed by 2016, will feature 1,000 new hotel rooms and 50 VIP suites. The company is also expected to launch direct air charters to and from China later this year on two A320 jets, and the hope is this will increase VIP traffic. Dr Chen is now starting to explore other frontiermarkets. NagaCorp has formed Naga Russia, which is developing a 1,000-room casino with 100 table games near Vladivostok. Opening is scheduled for 2018.