Cambodia’s NagaCorp targets mid-ranking Chinese VIPs via Macau junkets
Cambodian casino operator NagaCorp says it plans to form joint ventures with Macau junket operators to bring ‘middle-roller’ VIPs to its Phnom Penh casino NagaWorld.
“We have initiated a few interesting efforts with Macau operators to entice players in Macau to check out NagaCorp,” the Hong Kong-listed company’s Chief Executive Dr Chen Lip Keong said in commenting on its annual results recently.
Last year, 60% of VIP gamblers at NagaWorld came from Malaysia; 15% from Vietnam, while 12% came from Singapore and another 12% from mainland China.
“We see a lot of potential from the Chinese tourists,” added Dr Chen.
“Co-operation may not be limited to operations; it could also be in the form of equity interests and joint ventures.”
NagaCorp says it is negotiating with the regional air carrier Shenzhen Airlines in the People’s Republic of China with a view to it operating a service between Shenzhen and Phnom Penh.
Chinese gold
Shenzhen in Guangdong province is next door to Hong Kong and was the first of China’s Special Economic Zones set up under China’s reforming leader Deng Xiaoping in 1980. It now has a population of approximately 14 million people drawn from all over the country. The Spectator magazine in London suggested in a 2006 article that 8% of Shenzhen’s then 12 million population were US dollar millionaires. That estimate may be on the high side, particularly as many of Guangdong’s factory owners and business entrepreneurs are Hong Kong residents who commute across the border on a weekly or even daily basis. If close to the mark however, it means there could potentially be 112,000 US dollar millionaires in Shenzhen alone. These are exactly the sorts of middle ranking VIPs that NagaWorld is pitched at.
NagaWorld accepts VIPs with relatively modest check-in sums (as little as US$5,000 per session and with a ceiling set at US$50,000) compared to Macau where entry level is typically US$50,000 according to some sources. In addition Cambodia has no restrictions on the number of times that Chinese citizens can visit its territory in a single year and 30-day visas are available on arrival for US$20. China by contrast has frequently in the last
two years put a cap on how many times its citizens can travel to Macau under the PRC’s personal permit system known as the Individual Visit Scheme.
Any expansion of Macau or Macau-style junkets into Cambodia could also have implications for the volumes of business coming into Singapore’s VIP market—at least at the lower check in level. That’s because Macau or Macau-style junket operators may be put off applying for an agent licence in Singapore due to the tough financial and personal reporting conditions demanded by the city-state’s Casino Regulatory Authority. Michael Leven, President and Chief Operating Officer of Las Vegas Sands Corp., the developer of the US$6 billion Marina Bay Sands resort due to open in the second quarter of this year, said as much at an investors’ conference in Las Vegas recently.
Strategic
NagaWorld is currently best placed of all the Cambodian casinos to draw in junket players from China. It has a strategic location in the country’s capital, and thus access to the most international flight connections. It also has a monopoly within a 200-kilometer radius of Phnom Penh that runs until 2065.
Most of Cambodia’s other casinos are fairly cheap and cheerful operations located on its western and southern borders, aimed at visitors from Thailand and Vietnam respectively though another upmarket resort is planned by South Korean investors outside Siem Reap, the tourist gateway to the Angkor Wat UNESCO World Heritage Centre.
A potential attraction of Cambodia for the junkets is that Macau is getting more ‘regulated’ and more cutthroat in terms of margins and competition year by year. An example is last September’s decision by the Macau government to impose a 1.25% cap on commissions paid to agents. There is a counter argument that although Macau is getting more regulations down on paper, it is still fairly relaxed in implementing them.
Nonetheless some Mainland VIP players and their agents may prefer travelling to a jurisdiction such as Cambodia where a casino operator’s ‘wiggle’ room for paying bigger commissions to agents and by extension bigger discounts to players is much greater. In particular, Cambodian casinos have much smaller government-imposed overheads than their regional rivals.
Liberal
Since the restoration of civil government in 1993 following the trauma of the Khmer Rouge regime and subsequent internal strife, the Cambodian authorities have taken a comparatively liberal approach to casino regulation, focusing mostly on ensuring it gets a share of the money the industry generates locally.
Macau operators pay 39% of the gross in direct taxes on their mass market and VIP gross revenue, plus 12% corporate tax on profits. Singapore’s tax burden is: 15% on the mass market gross; 5% on the VIP/junket gross; 7% GST (Goods and Services Tax) on all sales (regardless of the market segment) and 17% corporate tax on profits.
Cambodia has no tax on the gaming gross. It charges operators an annual flat fee (on top of the initial gaming licence fee). In an agreement made between NagaCorp and the government in late 2008 the annual flat fee structure was confirmed until 2018 on the understanding the government would be allowed to increase the fee annually by 12.5% to reflect the growth of NagaCorp’s business. NagaCorp’s revenues dipped in 2009 following the global credit crisis in late 2008, but the advantage of the flat fee structure is that overheads payable to government do not rise when revenue increases.
Based on NagaCorp’s interim results for the six months ended 30th June 2009 lodged with the Hong Kong Stock Exchange, the company’s official tax burden from the Cambodian government is currently 7.8% (i.e. US$1.086 million on US$13.887 million cash generated from half year operations).
Unlike most of the Macau operators, NagaCorp has virtually no debt. Recent redevelopment of one wing of NagaWorld, including an international standard convention hall, was paid for out of cash generated by the casino operation. Nonetheless its Phnom Penh casino operation has been more vulnerable to external economic shocks than the Macau resorts. In early February NagaCorp reported in its 2009 results a 36.3% fall in net profit year on year to US$25.5 million. Revenue for 2009 fell 39.1% compared to 2008, to US$118 million. The results might have been worse were it not for a comprehensive cost cutting effort that the company said produced 55% savings compared to overhead levels seen in 2008 and boosted gross profit margin and EBITDA margin. Middle ranking Chinese high rollers may prove more resilient customers during any future economic downturn than Malaysians or gamblers from neighbouring Southeast Asian countries.
