Inside Asian Gaming

INSIDE ASIAN GAMING | April 2012 2 Editorial Inside Asian Gaming is published by Must Read Publications Ltd 8J Ed. Comercial Si Toi 619 Avenida da Praia Grande Macau Tel: (853) 2832 9980 For subscription enquiries, please email subs@asgam.com For advertising enquiries, please email ads@asgam.com or call: (853) 6680 9419 www.asgam.com Inside Asian Gaming is an official media partner of: http://www.gamingstandards.com Publisher Kareem Jalal Director João Costeira Varela Editor James Rutherford Operations Manager Jessica Lai Contributors Desmond Lam, Steve Karoul I. Nelson Rose, Richard Marcus Sudhir Kale, Jack Regan William R. Eadington Graphic Designer Brenda Chao Photography Ike, Alice Kok, James Leong, Wong Kei Cheong James Rutherford We crave your feedback. Please email your comments to James@asgam.com The critical mass The hot hand Macau’s gaming industry is playing thus far in 2012 is expected to continue this month, with a couple of important holidays—Ching Ming and Easter— falling within days of each other, followed by the unveiling of the first phase of Sands Cotai Central. The combination “should drive additional Mainland visitation,” CLSA Asia-Pacific Markets said in a recent note to investors. “In addition, the Easter Holiday should induce additional Hong Kong weekend visitation,” the firm noted. “Accordingly, we are expecting a strong week one to April GGR.” As for Sands Cotai Central, CLSA added, “We continue to believe [it] will drive visitation and more GGR growth, especially high-margin mass revenue , to the Cotai side of Macau.” The italics are CLSA’s, underscoring the consensus view that as Cotai continues to be developed, Macau moves ever closer to realizing its potential as a true regional tourismdestination. If mass-market gaming is any indication, that process is advancing nicely. Growth in the mass segment, tables and slots, has outpacedVIP on a percentage basis the last three quarters and counting, according to a recent report by Deutsche Bank. Through the first three months of 2012, mass-market GGR revenue was up 36.3% year-on-year, versus 23.5% for VIP. The quarter saw daily mass revenue reach an all-time high—“a trend we believe can continue over the next several quarters following the opening of Sands Cotai Central,” DB’s Carlo Santarelli and Kelly Knybel wrote. CLSA predicts 30% mass growth this year versus 17% for VIP. Morgan Stanley is forecasting 27% and 18%, respectively. Looking beyond 2012, the trend should continue as Macau draws closer to its principal feeder markets on the Mainland. The governor of Guangdong Province, Zhu Xiaodan, said earlier this year that the province would extend its inter-city rail network between Guangzhou and neighbouring Zhuhai to the Border Gate and to Hengqin Island. Macau’s Maritime Administration, in the meantime, has been assessing proposals from a number of companies that could see the addition of three new ferry routes to the Pac On terminal on Taipa before the end of this year, in addition to Sands China’s CotaiJet. Union Gaming Research Macau believes the addition of the new routes could bring to Macau 1 million more visitors annually and will be especially beneficial to the three operators with a presence on Cotai. The portion of Sands Cotai Central unveiled this month should cement the company’s leadership in the mass market. It includes the first of two themed casinos (200-plus table games, 150 VIP tables, 600 slot machines, 200 live multi-game table positions) and two of its three hotels, a 600-room Conrad and 1,200-room Holiday Inn. The second casino comes on line in the third quarter, together with a portion of some 4,000 Sheraton-branded hotel rooms. At full build-out, the complex will include 11 food and beverage outlets, more than 28,000 square metres of meeting space, shopping and other non-gaming amenities and should cement Sands’ leadership in the Macau mass market. The company entered the year with better than a 34% weighted share of customers in the segment, according to Union Gaming, followed by SJM Holdings (27.2%) and Galaxy Entertainment Group (20%). By property, Venetian Macao was by far the mass leader with 22%. Morgan Stanley’s Praveen K. Choudhary and Katherine Sun expect Cotai Central to generate EBITDA of US$388 million for Sands this year and $827 million in 2013. Good news for Sands, needless to say. But good news also for Galaxy and Melco. If there’s downside, it’s for the three operators currently lacking a Cotai presence, as Morgan Stanley believes most of the early gains in the aftermath of the opening will be creamed off the peninsula’s market share. But how bad can it be when Macau continues to pump out numbers that astound? Give or take a hundred million, the market will be headed north of US$40 billion in the months ahead. Gross gaming revenue hit MOP74.31 billion in the first quarter alone (US$9.29 billion), an increase of 27% year-on-year. Upon seeing those results, Deutsche Bank’s Karen Tang revised her estimate of GGR growth for the year from 20% to 25%. Credit Suisse’s Gabriel Chan upped his from 18.9% to 24.6%. Morgan Stanley previously had forecast 15%, which they’ve since bumped to 20%. CLSA expects an increase of 21%.