Inside Asian Gaming

INSIDE ASIAN GAMING | April 2009 4 Editorial Publisher Kareem Jalal Director João Costeira Varela Editor Michael Grimes Business Development Manager Matt Phillips Operations Manager José Abecasis Contributors Desmond Lam Steve Karoul I. Nelson Rose, Richard Marcus Shenée Tuck, James J. Hodl Andrew MacDonald William R. Eadington Graphic Designer Brenda Chao Photography Ike Inside Asian Gaming is published by Must Read Publications Ltd Suite 1907, AIA Tower, 215A-301 Av. Comercial de Macau - Macau Tel: (853) 6646 0795 For subscription enquiries, please email subs@asgam.com For advertising enquiries, please email ads@asgam.com or call: (853) 6646 0795 www.asgam.com Printed by Unique Network Printing Factory Ltd. Tel: (853) 2828 2832 Fax: (853) 2828 2830 E-mail: unique@macau.ctm.net Dr Stanley Ho Profit in theWilderness Dr Stanley Ho may take issue with journalists for reporting that his personal wealth has fallen during the global financial crisis, but the Macau casino company he chairs is unequivocally still turning a profit— albeit a modest one. In fact, following the report of Wynn Resorts’ loss for Q4 2008 on the back of capital expenditure on Encore Las Vegas and Encore Macau, it leaves SJMHoldings Ltd as the only one of Macau’s gaming licence holders to be currently returning money to shareholders in the form of dividend. SJM, which held a 40-year monopoly on casino gaming in Macau until liberalisation of the market in 2002, posted net profit of HK$796.1 million for 2008, down 48.1% year on year. The decline accelerated in the second half, when net profit was down 77.6%. The Hong Kong-listed casino operator said it was proposing a final dividend per share of HK$0.06 for 2008. Earnings before interest, taxes, depreciation and amortisation fell to HK$1.6 billion, down 22.4% from a year earlier. The company’s gaming revenue fell 12.9% to HK$27.99 billion during 2008, largely as a result of a slowdown in sales of VIP chips in the second half of 2008. SJM blamed the fall in gaming revenue on credit market conditions affecting the VIP gaming promotion business.“These factors reduced VIP chips purchases and consequently the revenues derived fromVIP gaming operations. In addition, the hold rate or house-win percentage inVIP gaming operations declined slightly in 2008 from the previous year.” The company added that other factors affecting the profit margin were more competitive conditions in the VIP market resulting in higher commission rates due to junket operators and aggregators and the start-up costs of SJM’s Ponte 16 and Grand Lisboa Hotel operations, along with increased depreciation and interest costs related to both projects. Mass market rising in the mix Last year, VIP baccarat contributed 67.8% of total gaming revenue across all of Macau, but only 57.1% at SJM, where VIP revenue was cannibalised by other operators offering steeply higher discounts to junket operators bringing VIP players to Macau’s casinos. SJM’s mass market revenue, however, continued to grow in 2008, and made up 40% of the group’s gaming revenue in the year, compared with 33% in 2007. SJM has seen its VIP table capacity drastically reduced as it has consolidated its VIP rooms into the Grand Lisboa property. Total room inventory has gone from 75 in 2007 to 40 last year while the number of tables has also fallen to 180 from 305. The company said the move had been made“in order to improve the efficiency”of the VIP operations. It said that average net win per day rose slightly to HK$186,470 from HK$181,012. Mass-market revenue rose 3.6% to HK$11.1 billion from HK$10.7 billion. SJM saw its total of mass- market tables rise to 1,154 from 1,107, largely due to an increase at both the Grand Lisboa and at its new Ponte 16 property. Revenue from slots rose 11.9% to HK$958.7 million with the total number of slot machines rising to 3,867 from 3,702. SJM operates slots at 11 of its casinos and in its four slot halls. The flagship Casino Grand Lisboa continued to exceed SJM’s expectations, with revenue up 80% to HK$8,605 million and EBITDA up 41% to HK$1,404 million during the year. The company revealed that Casino Ponte 16, which opened in Macau’s historic inner harbour area in February last year, had not produced enough revenue to cover start-up and operating costs. However, SJM said it will introduce VIP gaming operations later this year in an effort to ramp up Ponte 16’s performance. Other operational highlights of 2008 noted by SJM include the opening of the Grand Lisboa Hotel in December, commencement of construction of Casino Oceanus which is scheduled for completion in November 2009 and commencement of construction of Casino L’Arc which is planned for opening in the third quarter of this year. The company also pointed out that it sees no need for borrowing in the coming year. The company also announced last week that it had replaced the terms of its purchase option agreement for the Hotel Lisboa with an agreement for joint redevelopment of the property with its parent company, Sociedade de Turismo e Diversões de Macau (STDM). Commenting on the company’s prospects, SJM CEO Ambrose So added: “Whilst the growth of Macau’s gaming industry has been interrupted by the general weakening of the global economy and the tightening of visa restrictions, we remain confident in SJM Holdings’ ability to adapt and grow. We have all the ingredients in place to ensure continued success—the right products, the best strategic locations and a highly successful operation at Casino Grand Lisboa, and will continue to exploit opportunities for growth based on our excellent relationships with gaming promoters while capitalizing on our balance sheet flexibility.” Kareem Jalal and Michael Grimes