Inside Asian Gaming

December 2014 inside asian gaming 17 Insights IAG : It’s been a challenging year for Macau, as we know. What’s your take? Where do you see the market headed? Mr Jolly: It’s interesting that we’re now for the first time really seeing a reduction in gross gaming revenue in the market, and what’s interesting about that is whilst we’re coming off on revenue at a fairly high rate, like [October’s] 23%, when you look at the quarterly reports, each one of the concessionaires is still showing strong EBITDAs. Obviously, what’s happening is that you’ve got your junket operations run on a very low margin coming off at a fairly big rate, but there’s been growth in the premium mass, the market that the casinos are going after themselves on the high end, plus electronic gaming is compensating for some of the drop in VIP. There’s an equilibrium thing going on at the moment, and in some ways there should be more focus put on the companies’ EBITDAs than there is on the number that is publicized by the government every month: gross gaming revenue. I feel that it’s time to really rethink how the numbers are actually portrayed to the market. The exciting thing for companies like ourselves is that electronic gaming, whilst not, particularly on the slot side, growing massively in units, the average earn per machine is growing, and hence, the numbers are going up. It’s also going up in electronic table games, and there are more companies now looking to bring more of that product into this market. As we get into the openings of the next six big properties and the two smaller ones in the next three or four years, and with the table cap leaving operators not really sure whether they’re going to get the numbers of tables they’re looking for, I think electronic units are going to increase. Because when they don’t get their table numbers, or if they don’t get their table numbers, say they get cut back to 50% of what they want, they’re going to fill their floors up with something, and it’s going to be slots and/or electronic table games. So despite the gloomy forecasts, for you guys it’s perhaps one of the best times in the last 10 years, precisely because of all the new openings, both in Macau and region- wide? I guess when you look at it from a business perspective, as a vendor, looking at Macau since 2004, which is when really it started to move, there have been a couple of periods where we’ve had enormous growth, and we’ve had flatter periods. Given what’s going on now, all the new construction, there’s obviously a real growth spurt coming, and with the size of the orders they’re talking about for the new properties, the next three years look promising certainly. You’ve got new openings in the Philippines. There are still some opening in Laos and Cambodia even though they are smaller. So it’s promising at the moment. After 2018, when the next round of Macau gets done, it will all depend on what happens after that and how the product that comes into the market over this period is accepted and adopted, and how Macau grows as they bring in more non-gaming related activity to drive tourism, which should also help drive revenue growth. These concentrations of openings, for you, as a publicly listed company, it’s a bit of a challenge, isn’t it, in terms of maintaining constant revenue streams? You think back to when The Venetian opened in Cotai, the only one over here on this side except for the Galaxy Grand Waldo, there wasn’t that acceptance of “Let’s go to Cotai”. It was more, “Let’s stay on the Macau Peninsula”. It’s a little different today when you look at the volumes of people that are in the Cotai properties, particularly The Venetian, every weekend. People are coming to the Cotai area and are recognizing the Cotai area as the mass-market area. So I think that, yes, whilst because of the amount of product coming on line there are obviously going to be some slow periods, the acceptance rate is probably going to be better than it was back when The Venetian and City of Dreams tried to establish this side of Macau. And it is still obviously a very small market, but once you get to the scale of an Australia then the replacements become your regular revenue. You’re right. You look at Australia, 200,000 odd machines across the market. You look “There should be more focus put on the companies’ EBITDAs than there is on the number that is publicized by the government every month: gross gaming revenue. I feel that it’s time to really rethink how the numbers are actually portrayed to the market.” “We’re now seeing an acceptance with electronic gaming, because we’re actually focusing and targeting to the right audience. And as infrastructure and all the other things that are happening [in Macau] get better, and as the travel reaches further into China, I can only see electronic gaming continuing to grow.”