Inside Asian Gaming

INSIDE ASIAN GAMING | 48 INSIGHTS A lot of the visitors to the Cotai properties are tourists and leisure visitors who aren’t as interested in gambling as the hard-core players on the peninsula. Are these leisure visitors actually valuable to the casinos? They are good and bad. If tourists come in, even though they are mainly there to take pictures, they could also gamble a little bit, but will not sign up for the casino’s loyalty card. They just come in, throw chips on the table, lose and go. The casino has no reinvestment cost and doesn’t need to provide hotel service or food vouchers for them. By contrast, the hard-core gamblers sign up with the loyalty programs, accumulate points, redeem hotel rooms, etc. How will the peninsula casinos hold up beyond the next wave of Cotai development? They will grow slower than the overall market because if you are a hard-core gambler you are already coming to Macau. The new customers to Macau over the coming years are likely to be more leisure entertainment or new players, and they will be more attracted to Cotai. So the growth of the peninsula relative to Cotai will be slower, but I believe the peninsula casinos will still grow. And some people definitely seem to prefer the more raucous, down-and- dirty atmosphere at the older casinos. It’s their comfort zone. They feel this is the way to gamble—yelling and pounding the tables. They are more relaxed. government—building up critical mass in a short period of time. That critical mass creates a natural barrier to entry. What are the challenges in valuing Macau gaming stocks? One is from the driver point of view. The VIP market is inherently very volatile, so it’s not easy to forecast an exact number. As an investor I pay for the cash flow stream of a business over the next 10, 20 years. If the revenue is inherently volatile, how can I have an assurance of what kind of cash flow I can get and what kind of multiple I should get on this income? The other consideration is that in the medium term, in 2020-2022, the licenses of Macau’s casino operators will be expiring. We are likely to get more clarity on how the licenses will be renewed closer to the expiry date. As we move closer to the license renewals, investors will focus more on whether there’s a risk factor there. Even though it’s highly unlikely any of the operators will fail to have their licenses renewed? But still there is uncertainty. So you need to put a discount for the license renewal risk. Critical mass under construction—the Cotai Strip Ramping up—Solaire What are your thoughts on the other markets in the region? How about Solaire in Manila, which opened in March? It seems to have got off to a slow start. It is gradually ramping up. It will take some time normally for a new casino to ramp up, especially when the product is relatively high-end, it also needs some time to gain customer recognition. And the Manila Bay area is relatively undeveloped. Again, critical mass is important, and when all the other casinos gradually open up, you’ll get it there. How about Singapore? In Singapore the mass segment will not enjoy the similar growth story as Macau. I think for Singapore it will be more like single-digit growth in the mass market. And in terms of VIP, the problem in Singapore is they don’t have junkets, so the casinos need to extend credit to the players. The players come from different regions, you have different jurisdictions, and that may be a problem for debt collection. So there is some credit risk involved in the Singapore VIP market which makes it hard for it to grow as big as Macau’s VIP sector, because in Macau you have all the agents doing the debt extension and collection. Macau will continue to dominate the Asia market. In part because it’s right next to China, and because it’s already built critical mass with 35 casinos densely located in a very small place. It’s hard for the others to replicate that quickly, so this is a clever strategy on the part of the Macau