The grandson of late Genting Group founder Lim Goh Tong, Donaco International Managing Director and CEO Joey Lim says after using the Genting system in Vietnam and Cambodia, the Australia listed casino operator is ready for mainstream markets like Japan.
Donaco International closed its transformational US$360 million purchase of Star Vegas in Poipet two years ago this month. Donaco began with a casino hotel in Lao Cai on Vietnam’s border with China’s Yunnan Province in 2003, renamed Aristo International after an AU$43 million (US$32 million) upgrade to five-star status in 2014 with 400 rooms, 40 tables and 68 gaming machines. Adding Star Vegas, market leader in Cambodia’s border casino cluster closest to Bangkok with 139 tables and nearly 1,600 machines, lifted Donaco revenue seven times and EBITDA 35 times in FY2016. This year, in the nine months through March, Donaco’s EBITDA rose another 10.5% to AU$56.7 million (US$42.7 million) on revenue of AU$96.3 million despite a subdued first half for Star Vegas.
But for Managing Director and CEO Joey Lim, who founded Donaco in 2002 with his late grandfather – Genting Group patriarch Lim Goh Tong – to prospect boutique gaming opportunities, the ride is just beginning.
Muhammad Cohen: You’re Malaysian, Donaco operates in Vietnam and Cambodia and is listed in Australia with the ticker DNA. So what’s Donaco’s DNA?
Joey Lim: Donaco’s DNA is basically our management team, all the senior management team for both properties in Cambodia and Vietnam comprised of ex-Genting professionals. Some even worked alongside my grandfather, the late Tan Sri Lim Goh Tong. That is essentially the DNA of our company and this permeates throughout the organization, the systems, the procedures and the culture, which is super important. Our net margin at both properties exceeds 50%. Our cost control system, our payroll and HR management are all grounded in the Genting principals.
MC: What’s your relationship with Genting now?
JL: I have no commercial ties whatsoever. DNA is completely and utterly independent.
MC: The 2016/2017 first half conference call portrayed Donaco as very much Southeast Asia focused. In the past, Donaco has indicated it’s looking for boutique opportunities anywhere. Which is it now – strictly Southeast Asia or casting a broader net?
JL: We do want to focus on Asia, where not only do we have more complete local knowledge – which is always important in doing business no matter what industry you’re in – but especially when it comes to gaming and understanding of the government and how it works, as well as having strong local partners. For us in Asia, being Chinese and Malaysian, this is what we understand best. My grandfather always told me to stick to what you know best instead of venturing too far out, especially at the level where we started and where we apply our trade in that boutique space.
The first 10 years of my company’s life, we were looking at that space. With the acquisition of Star Vegas, we are now able to start looking at larger opportunities. Last year our full year revenue of AU$140 million brings us to sort of a mid-size company now and it allows us to look at not necessarily large scale IR projects like Sands, MGM or Genting, but larger than 20 to 30 table operations.
And we don’t exclude ourselves from participating in some of these large IR projects. I assisted on one North Asian integrated resort [Mohegan Sun’s Inspire in Incheon, South Korea], which should be breaking ground very soon. It was a little bit too large for DNA to take on. Down the line, being part of a consortium or even taking up a management contract on some of these larger scale projects is a distinct possibility.
MC: Do you mean a project in Japan, where a partnership with a Japanese company or management contract could be available?
JL: Sure. I won’t be presumptuous to talk about a Tokyo bid, an Osaka bid or even an Okinawa bid. I’m talking about the second wave of Japanese gaming, perhaps something more regional. We already have partners who are very actively engaged with us looking for the opportunity to break through. Our Japanese partner is extremely well regarded and very strong within Japan [Mr Lim would not identify the partner].
MC: Tell me about working with your grandfather.
JL: It all started in 2001 when the Vietnamese government invited him to invest in a casino project. My late father [Lim Tee Keong] was very closely attached to this project as well as my grandfather – basically the three of us, all three generations, went over to see the project. At that time Hao Long Bay was on offer as well as Lao Cai. We were told very, very firmly that this will be the first fully-fledged casino in Vietnam and one strict rule that we had to adhere to was foreigners only, no locals.
So the three of us looked at Hao Long Bay and Lao Cai. We decided on Lao Cai because of its proximity to the border. My grandfather saw the potential of China. We’re talking four hour car rides, overnight trains. He was really determined. I think it reminded him of the old days of Genting and some of his [contractors] from Genting were involved. Lao Cai is a brick by brick replica of Genting. Why fix what’s not broken? If it works for my grandfather, it works for me.
Local government had a 25% stake (now 5%). It was a very, very successful business relationship. Very ground up style, as my grandfather taught me. Rolling up your sleeves, getting your hands dirty, building a good core team around you.
MC: Will your government partnership help Aristo become part of the experiment with local play?
JL: It’s not so much friends in high places but the track record, the history, the deep history and the government relationship, that should help us to put that forward.
MC: Star Vegas had a difficult first half…
JL: We are in this for the long term. One or two years’ evaluation doesn’t do the business justice. It’s a well established property, but it isn’t a mature property. There is very, very significant growth to be had. Although the potential for Lao Cai is much greater, there’s still some legs for Star Vegas.
We did see our earnings for the first half tail off slightly, but our revenue and net profits actually increased. Volume in terms of the visitors and the rolling has come off by about 20% to 30%. This is mainly due to the fact that the Thai King passed away last year. Business impact permeated throughout Thailand and we are Thai-centric. We don’t expect that to last forever. Given time, we can realize quite healthy growth from Star Vegas.
This year we are starting to really go in the market internationally, because up to now we’ve been a little bit shy of international gaming promoters like [former VIP room partner] Hengsheng [Group]. We got a bit of a bad taste from that last relationship.
We did an internal review and said, “Look, focus on our Thai business and we will make slow but deliberate moves to engage with international marketing teams.”
We’ve made breakthroughs with some fairly large Macau names and some fairly large Asian names. Stand by, you’ll see us make some very, very interesting announcements. (A three year deal with Poker King Club to stage at least three international tournaments annually at Star Vegas kicked in on 1 July).
MC: Will Chinese customers come from an airport three hours away?
JL: No. The primary attraction is Siem Reap. Angkor Wat is now Trip Advisor’s top destination and in 2016 as well. Plenty of Chinese coming in are making enquiries about Star Vegas. To tell the truth, we are lagging behind Poipet. I mean, we are market leader in Poipet with more than 50% of the business, but we are lagging far behind the other properties in terms of marketing to the Chinese.
The main business model for us always stays the same – be as local as possible, as independent from fly-in as possible. But for us to ignore the possible fly-in Chinese market from Siem Reap is irresponsible because that opportunity could be quite large. From Siem Reap it is only a two hour drive, not as far as Bangkok. But for them to come over is a whole different dynamic, as then they are not just coming to play but they want to come to see Siem Reap and Angkor Wat, go to the lake and come out to Poipet, maybe for one night.
So we need to think differently, make a different sort of offering. We definitely need to upgrade our hotel rooms, which we already have started. We’re upgrading one wing of Star Paradise at the moment.
MC: What’s the relationship with Star Paradise, next door to Star Vegas?
JL: This property belongs to our Thai partner [Somboon Sukjaroenkraisri], the former Star Vegas owner, now the second largest shareholder of DNA behind myself and my family. Historically he’s allowed us to use the property free of charge. What’s happened is Star Vegas gets completely and utterly full and spills over to Star Paradise.
Starting late last year we have an experiment allowing some Thai VIP junkets to operate there. DNA leases the license to the junket operator, they lease the property from the Thai partner and DNA provides the operational and management expertise to run the place.
MC: Like Macau junket rooms?
JL: It’s a little bit different. What we have in place is an option to acquire the property at a future date, depending on the revenue derived.
MC: What’s the competition for Star Vegas?
JL: There’s Holiday, Grand Diamond and the Golden Crown properties as well – basically people in Poipet, not with NagaWorld [in Phnom Penh]. I was just sitting down with Chen Yepern, the second son of [NagaCorp founder and CEO] Tan Sri Dr Chen Lip Keong, in Naga on Friday, sharing our notes across the border. Absolutely not competitive at all.
MC: What about rumblings of Thailand legalizing casinos? Wouldn’t that ruin Star Vegas?
JL: [Casino legalization] might happen. But for that to happen, I think the military government has to hand power back to civilians. I don’t think the casino law will come out under military rule.
If that happens, hopefully our Thai partner – he is a force to be reckoned with and I estimate him to be top five richest in Thailand – I reckon he has a very good chance to help DNA to lobby for a casino license. I believe for Thailand a casino license will not be a monopoly. It will be a few and it’s absolutely another boutique opportunity.
MC: Do you still see Donaco as a boutique resort developer?
JL: I do want to have a unique offering for investors rather than another highly intensive capex, IR focused business. As you can see, we take on very, very manageable levels of debts, gearing ratios are very low, cash flows are very strong. We tend to prefer looking at existing projects that we can enhance or put under our belt.
MC: Would Donaco be comfortable in a highly regulated market, as expected in Japan, compared with its current frontier markets?
JL: Absolutely. As a publicly listed company we have to be transparent about how we operate our business and we have to adhere to all the laws, so we are very comfortable operating under these conditions. As you can see actually, from Vietnam and Cambodia’s point of view, we are looking at an increasingly stringent legal operating environment, even in Cambodia. This new casino law that’s coming into effect, for example, and Vietnam opening up even more and regulating casinos even more with the integrated resort decree.
You could almost say that these are training wheels for us to make sure that we learn to do things the proper way and for us as an operator, trailblazing as you’ve mentioned, with a government partner, we had to make sure that we didn’t break any rules even before we listed our company in Australia. The relationship has blossomed over time and we are comfortable with that.