Inside Asian Gaming

inside asian gaming April 2015 23 Cover Story Steve Park at Kore Company argue the country’s new “mini-IRs” will prove too small to compete regionally. “Korea has a supply of foreigner only casinos already. Would one, two or three more bring more gamers? Would mini-IRs supply the Singapore experience? I doubt it,” he contends. Paradise City, with its initial complement of 160 gaming tables, 388 electronic table games and 350 slot machines, will become by far the country’s largest foreigner-only casino come 2017, but will hardly measure up to the IRs in Macau and Singapore. There are several bulls, however, including Standard Chartered analyst Philip Tulk, who believes IRs in Incheon will produce a cluster attractive to foreign visitors. A second project already approved on Yeongjong is a similarly priced joint venture led by US casino operator Caesars Entertainment, which plans to break ground this year and open in 2018. Two other ventures could join the cluster come 2019, including one developed by Hong Kong-based retail and property conglomerate Chow Tai Fook Enterprises, and another by the operator of Incheon’s international airport. There’s also a chance they could all morph into more than mini-IRs. At final build-out, most of the proposed Incheon projects have investment targets in the billions of dollars, though clearly, it remains to be seen whether any of them are realized. Even Paradise City envisions doubling its investment in its second phase. Poised for a Boom Foreigners-only casino revenue is forecast to triple by 2020 Source: NGCC, Companies, Standard Chartered Research estimates on Japanese—who now supply only about a fifth of its revenue—and is getting even more geared to serving Chinese. The combination of hallyu and integrated resorts could provide a potent draw for China’s fast-growing middle class, also spurring the advance of mass-market players in the foreigner-only sector, and a gradual end to the dominance of VIPs. number of Chinese soared 41.6% to 6.13 million, following 52.5% growth in 2013. Last year, Chinese visitors comprised 43.1% of total arrivals, having risen steadily from 10.8% in 2004 to 25.5% in 2012, then going on a tear over the past two years as China’s middle-class masses fell increasingly under hallyu ’s spell. The trend looks set to continue and bring Chinese visitors’ share of total arrivals to over 50% this year. As China rises, Japan has been displaced as Korea’s biggest source of arrivals. Japan had still held the lead as recently as 2012, when it supplied 31.6% of arrivals, but the number of Japanese visitors fell sharply over the past two years as the yen depreciated against the won, bringing Japan’s share of arrivals down to 16.1% in 2014. It’s worth bearing in mind that when the South Korean government legalized foreigner-only casinos in 1967, Japan was by far the country’s leading source of tourists and it was Japanese players the sector was designed to serve. In recent years, just as they’ve done in the tourism sector, Chinese have also supplanted Japanese in the casino sector. The continued wane in demand from Japanese players is no doubt contributing to the current softness in Korea’s foreigner-only market. Given the likely near-term legalization of casinos in Japan, however, it’s just as well the sector is continuing to reduce its reliance GCR (KRW bn) 2013 2014E 2015E 2016E 2017E 2018E 2019E 2020E 30% 25% 20% 15% 10% 5% 0% 5,000 4,000 3,000 2,000 1,000 0 3.5x in 2013-2020E Paradise (existing ops) GKL Others Paradise City FEC GGR Yoy (RHS) Caesars/Lippo/OUE GENS/ Landing Chinese Will Drive Growth Gaming revenue split by nationality at foreigners-only casinos Source: Comnpany reports, J.P. Morgan. Estimates. 1.6 1.2 0.8 0.4 0.0 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E (W tn) Chinese Japanese Others 0.4 0.5 0.6 0.8 0.9 1.0 1.1 1.2 1.5