Inside Asian Gaming

INSIDE ASIAN GAMING | February 2013 2 Inside Asian Gaming is published by Must Read Publications Ltd 5A FIT Center Avenida Comercial de Macau Macau Tel: (853) 8294 6755 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 Licca Sou Contributors Marian Green, Andrew Klebanow Alexander Lobov, Richard Meyer 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 EDITORIAL ThoseWho Know Like VIP’s Chances The Macau government recently announced the approval of 16 new junket operators, bringing the number of licensees to 235. Observers see this as a sign of a healthy VIP market heading into the new year. Among other things it’s being taken to indicate that the market is extending its reach deeper into China—which accounts for 90% of VIP players—pushing past Guangdong and Fujian, where currently more than half of visits from the mainland originate, and into the vast north and west of the country. This can only be good news. VIP, after all, still generates better than two-thirds of gaming revenue in this largest of the world’s gambling markets, and last year, we know, was the toughest for the sector since the dark days of 2008-09. It was a“roller coaster ride,”as one well-known analyst termed it. Rolling chip turnover actually declined year on year between July and September. When was the last time you saw that happen? In October it grew not at all. The forecast is brighter for this year. But then forecasting the high end is tricky. So much depends on the mainland economy, and with growth having slowed the last couple of years, what we’ve seen is some slippage in the gears of the vaunted VIP money machine. During the worst of it last summer there was talk of a liquidity crisis. This wasn’t exactly the case, as it turns out. Certainly there was plenty of working capital among the five or so junkets that control 55-60% of the turnover. But lenders had cut back when demand within China appeared to be slackening; plus, it looked like bad debt had become an issue among some participants at the lower reaches of the food chain. Then in the fourth quarter the sector came roaring back. (Did I mention it’s tricky?) The decline in Q3 was forgotten amid a surge in turnover—7% sequentially, 5% year on year—which helped lift VIP revenues to their best three months ever, capped by December’s 16%YoY increase. In the front ranks of the charge was Hong Kong-listed Neptune Group and its partner in big- timeVIP roompromotion, the venerable NeptuneMacau, recently rechristened Guangdong Group, the better to delineate their separate businesses and management for the benefit of investors and the industry. The public company invests in VIP rooms, providing that all-important liquidity in exchange for a share of turnover. Guangdong, which started life years ago as a cruise ship operator, directly promotes the rooms. Hence the new name, which was taken, appropriately enough, from its popular Guangdong VIP Clubs. “It’s a long-established brand,” notes CEO Winnie Wong, “so we decided that it would give the public a much clearer message.” As if there was any doubt about VIP’s prospects, the core of that message couldn’t be clearer. “Liquidity is near perfect. Collection is good. Repeat business is excellent. The business is there every month.” That’s Neptune Executive Director Nicholas Niglio, a 25-year industry veteran whose roots reach back into Atlantic City’s gold rush days. It’s Mr Niglio whom Ms Wong credits for nurturing the close working relationship that has enabled both companies to flourish. “It has always been very encouraging, the cooperation, very effective,” she says. “We exchange a lot of business ideas. We discuss our ongoing development plans, how to cherry-pick [rooms] among the different properties, and if we have a choice, which one is the best move.” Mr Niglio deflects those sentiments to that macro picture that continues to prove so compelling for Macau and for VIP. “China has had such minimal penetration into Macau. If you look at Las Vegas, to take an example, its US penetration is about 15%. Macau is about 2-3% of China. So we have a long way to go. Even if we do half that, that’s a lot of new customers.” Neptune’s growth actually outpaced the market in its latest financial year, booking HK$282.9 million in profit, a 41% increase over 2011. Agreements are in the works to add investments in rooms at Grand Lisboa, Wynn and MGM Macau, 64 tables in all. When completed they will extend the company’s presence into the casinos of five of the six concessionaires, 115 tables in total. In terms of tables, Guangdong, for its part, controls about 10% of the VIP action. Its portfolio of 221 tables is the second-largest in the market. “The concessionaires, they do choose their partners,”MsWong points out.“Our foundation and track record give us the support to get the best deals and best locations. Not counting the macro side, I think we ourselves are in good shape.” And both couldn’t be more bullish on the high end. “No one’s worried about keeping the town cooking,” says Mr Niglio. “Look at Melco, they raised $3 billion in like two days to build Studio City. So there’s confidence in the investment community, confidence among the operators. I don’t know anybody who doesn’t have confidence.” Maybe it’s not so tricky after all.