Inside Asian Gaming

INSIDE ASIAN GAMING | August 2012 32 Products subsidiary. As of March 2012, the company had 1,560 electronic gaming machines (EGM) in operation—799 in Cambodia and 761 in the Philippines. It has 670 EGMs at NagaWorld, where EGT gets 25% of the win per unit per day. It also has a contract for 250 machines at the Thansur Bokor Resort and Casino in the Bokor Mountains, Cambodia, where EGT will get 27% of the win per unit per day. At the end of 2011, 64% of the company’s consolidated revenues were from the EGM business. By opening its own casinos in Cambodia, EGT not only retains a higher proportion of the revenue generated by its activities in the country, but it also insulates itself from the possibility of being dis-intermediated from its customers. The contract with NagaWorld is up in 2016, and it’s not clear whether that very big piece of business will be renewed, and at what rate. At the end of 2011, the EGMs at NagaWorld were 51% of the company’s consolidated revenues, according to the 2011 annual report. “As of today, it’s a material part of EGT’s earnings, and its loss would result in a significant decline in cash flow—were it not to be replaced by other sources,” points out Mr Govertsen. “As such, given the risk of contract termination in 2016, the company needs to replace these earnings, which is why we’re seeing the company open a series of casinos throughout Cambodia. I suspect that these casinos should replace the potential lost cash flow in its entirety.” There are other concerns surrounding EGT. Unlike NagaWorld, the company does not seem to have an iron-clad, well-defined gaming license from the government. In the 2011 annual report, there is a discussion of approvals needed, but it is not altogether clear under what authority the various Dreamworlds will operate and, more to the point, the duration and conditions of the licensing. The same goes for taxes. Very few details are offered in public disclosures, and the company will only say that it is paying a low fixed amount that is negotiated every year with the government. These areas are very important and represent some of the biggest assets, and biggest potential risks, for any operator. NagaWorld’s casino license—with a set duration and a monopoly period—and its preferential tax rate (reported precisely in dollar amounts bymanagement) are of great value to the company and very attractive to investors. Conversely, the expiry of the current preferential tax arrangement in 2018 is the biggest question mark faced by the company. With EGT, there are fewer hard numbers or timetables available, and this leaves quite a bit open to speculation and could raise doubts about the sustainability of the company’s high returns. By opening its own casinos in Cambodia, EGT not only retains a higher proportion of the revenue generated by its activities in the country, but it also insulates itself from the possibility of being dis-intermediated from its customers. Feature