Inside Asian Gaming

INSIDE ASIAN GAMING | April 2012 18 Market Outlook the risk of trade interruptions due to flooding and other extreme weather during typhoon season. But they suggest equity prices for real estate and gaming companies and consortia—and return on investment—are likely to be attractive compared to more developed markets. CLSA points out that Resorts World Manila—the country’s first integrated resort, located near Manila International Airport—has produced good returns for modest outlay (under US$1 billion in project costs) and this has helped the developers to maintain a low enterprise multiple. Resorts World Manila opened in August 2009 and was developed as a joint venture between Star Cruises (now Genting Hong Kong, a company listed in Hong Kong but traded in Singapore) and Alliance Global, aManila-listed conglomerate headed by Andrew Tan. “Alliance Global was the first among the four [IR] gaming-licence holders to complete its integrated-resort development. Valuations remain inexpensive with the gaming business at just 8x EV/Ebitda,” says CLSA. Enterprise Value (EV) divided by Ebitda is a formula used to establish the enterprisemultiple. It assesses a business as a potential buyer would, because it takes debt into consideration—an item that other multiples such as the P/E (share price to earnings) ratio do not include. CLSA adds that as well as modest equity pricing, the Philippine gaming market offers other attractions for investors. “Low tax rates and cheap construction costs underpin higher returns, with 23% ROIC [return on invested capital] keeping investors happy,” say the authors. “In 2011, we expect Resorts World Manila (RWM) to have delivered 34% return on invested capital (ROIC), which is higher than the recently opened Singapore and Macau casinos like ResortsWorld Sentosa (25%), Marina Bay Sands (23%) and City of Dreams (22%). Despite that, the investment return from RWM is still lower than that of the Macau casinos opened before 2008, which are yielding an average investment return of 40% to 133%.” The report adds that low project capex compared to Macau and Singapore strengthens the case for investment in Philippines IRs. “Taxed at a relatively low rate, we expect Ebitda [earnings before interest, taxation, depreciation and amortisation] margins to be around 38%. With attractive project costs of US$1 billion against an average US$2 billion-US$3 billion in Macau and US$5 billion-US$6 billion in Singapore, we expect return on invested capital of 23%,” adds CLSA.” CLSA points out that the Philippines government has identified gaming as an important driver of GDP growth. “The opening of the gamingmarket has had a remarkable impact on the Macau economy, with GDP growth averaging 21% over 2004- 10. The unemployment rate has also declined from over 6% in 1999 to 2003 to an average of 3.6% in 2004 to 2010,” says CLSA. Belle Grande Manila Bay The report gives a snapshot of the project size and facilities at each of the three new Manila IRs—factors that could help drive GDP growth in the Philippines. “Belle Corporation owns a six-acre site and is currently constructing the Belle Grande Manila Bay, which is anticipated to house 350 gaming tables, 1,900 slots, three hotel towers (with 1092 hotel rooms), residential tower and other amenities. The integrated resort is scheduled for soft opening in 2Q12 and is estimated to cost US$1 billion,” says the report. “Belle is a leading developer of high-end second-home gated Asia Pacific casinos: Construction capex (2011) 7,000 (US$m) 6,000 5,000 4,000 3,000 2,000 1,000 0 Oceanus Sands MO Starworld Altria RWM G. Lisoba Four Seasons MGM Macau Venetian LV Wynn MO Galaxy MO Venetian MO Wynn LV CoD RWS MBS Source: CLSA Asia-Pacific Markets Asia Pacific casinos: ROIC (2011) Source: CLSA Asia-Pacific Markets 45 40 35 30 25 20 15 10 5 0 17 18 19 22 23 24 24 26 34 41 Wynn LV Four Seasons Venetian LV CoD Philippines IRs MBS RWS Oceanus RWM Venetian MO Artist’s impression of Belle Grande Manila Bay, due to open this year