Inside Asian Gaming

inside asian gaming MAY 2015 20 Cover Story is positive” fromMacau visitors, Mr McNally says. “Cambodia has its own unique attractions.” Compared to some other regional gaming destinations, “It’s a better fit actually for mainland Chinese.” Last year, VIP roll grew 35% to $6.2 billion and VIP revenue increased 41% to $188 million. Even without Asian Nations’ contribution, second-half VIP roll jumped by more than 20% because, unlike Macau, NagaWorld was getting most of its VIP revenue from Southeast Asia. Morgan Stanley estimates China VIP business contributed less than 5% of NagaCorp’s second-half gross profits, with 22% from other VIPs and 73% from the mass market. On the other hand, the relatively small contribution from China provides ample room for growth, particularly under current conditions. “The downturn in Macau offers the group opportunities to further penetrate the Chinese gaming market in both the VIP and mass gaming segments, by being able to offer attractive terms to junket operators and agents as a result of NagaWorld’s low cost structure,” the company stated in its earnings release. Macau’s largest junket promoter, Suncity Group, is expected to begin sending customers to NagaWorld this month. Morgan Stanley Asia estimates Suncity will roll $200 million monthly at NagaWorld. First quarter 2015 VIP roll increased 79% to $1.7 billion and revenue doubled to $65.5 million. For the year, Morgan Stanley estimates VIP roll will grow 54% to $9.6 billion and generate an incremental $21 million in gross VIP profits. A revamp of NagaWorld’s rooftop pool area opening later this year will add about a dozen VIP tables, as well as mass gaming. This casino cell will allow players to enter in swimwear; NagaWorld won’t say what its staff will wear. These changes are just a prelude to Naga2, under construction 100 meters (110 yards) away across a major roadway. Naga2’s two towers will have 1,000 guest rooms, 38 VIP salons, up to 300 tables and 500 electronic gaming machines, plus a theater with 2,100 seats and meeting space across 110,000 square meters. The main focus will be on VIP, with perhaps 50 additional mass market tables. Executives suggest one tower may be dedicated exclusively to VIP guest rooms outfitted with private gaming tables. The downside to increased VIP play is margin erosion. Net profit margins fell from 40.7% in 2013 to 33.7% last year. Margins on VIP play also fell three percentage points to 37% due to increased incentives to junkets. Analysts believe regional competition from the Philippines, South Korea and Vietnam might drive up costs and put further pressure on margins. Mr McNally concedes, “VIP is demanding. It’s high-end costs. It’s not something where you can have one foot in the water. Margins [on VIP] are not what they are on the mass market side. It’s the mass market that keeps your foundation solid,” he says. “We want robust junket representation, but mass market is still key.” AN EYE ON CHINA NagaCorp is also looking toward Chinese players to boost the mass segment. Last year it purchased a pair of A320 airliners that can seat up to 180 passengers to supplement its two Gulfstream private jets. The aircraft have been leased to independently operated subsidiary Bassaka Air, which is currently flying between Phnom Penh and Siem Reap, the site of Angkor Wat, the thousand year old Buddhist temple complex that’s Cambodia’s top tourist attraction. While the airliners can be used for VIP charters, NagaCorp executives say the main target is mass market tour groups. It has an agreement with China NagaWorld has added what it calls casino cells with unique décor and themes, such as Saigon Palace, appropriate since a large proportion of mass-market players are Vietnamese, once as many as 40%, though executives say that’s come down to 15% these days.