Tuesday, May 17, 2022

Suncity Group’s big diversification gamble


First established in 2007 amid Macau’s casino boom, Suncity Group rose to become the former Portuguese colony’s largest junket business, operating opulent VIP rooms where well-heeled Chinese gamblers bet small fortunes on one hand of baccarat.

Lately though, the Hong Kong-listed outfit, is going to be the flagship for diversification, including by investing in multibillion-dollar IRs across Asia. Indeed, Suncity Group has fast-become a multi-faceted conglomerate.

“It is a step forward for Suncity Group to diversify its business,” says executive director Andrew Lo, “from junket to resort and casino operator to become an international integrated entertainment company.”

Suncity signaled a real statement of intent last August when it completed the purchase of a 34 percent stake (worth $76.8 million) in Vietnam’s $4 billion Hoiana project near the tourist hotspot of Hoi An, situated within the Quang Nam province. Developed in seven phases over 13 years and covering 985 hectares, the first phase currently under construction comprises 1,000 hotel rooms, a casino with 140 tables and over 300 slot machines, and an 18-hole golf course. Phase 1 of the impressive-looking IR is earmarked to open in Q4 this year.

Phase 2, being finalized at the moment, is set to include 100 villas, two hotel brands boasting 2,000 rooms, a commercial village with retail stores and a theme park. A total of 4km of beach line will be part of the project, as well as more than a dozen restaurants.

“With Hoiana being the first integrated resort we have developed, we have high expectations,” says Lo. “It is totally different from hotels in Macau, in terms of the target market and operation strategy. The market positioning of Hoiana is a resort destination, [so] the revenue will not only come from the tables, but from other facilities.”

High rollers

While Lo expects VIPs to be the main target visitors initially, overhauls to infrastructure in the region will be conducive to attracting mass-market visitors. This includes the redevelopment of Da Nang airport (which was completed in 2017), which is 40km up the coast from Hoiana and is expected to handle 13 million passengers in 2020, as well as upgrades to roads and an increase in the number of hotel rooms.

“We believe the mass market will pick up in two to three years,” he says. “At the beginning, we believe the market will be 75 percent VIPs and 25 percent mass market, and from last year’s data we noted a boom in the number of Chinese and South Korean arrivals in Da Nang City. Therefore, we will mainly target VIPs from these regions.”

With a generally warm climate most of the year and more than 3,000km of coastline, Vietnam’s appeal as a tourism destination continues to grow. In 2018, the country welcomed 15.5 million international visitors (almost five million from China), up from 12.8 million the previous year, while De Nang’s international arrivals totalled 2.8 million – a 23.3 percent jump over 2017, according to the municipal Department of Tourism.

The city’s airport underwent expansion in 2017 and since then national and international airlines have launched direct flights to and from Da Nang. Tourist numbers from China, South Korea, Japan and Thailand are growing exponentially.

Suncity Group was quick to pounce on Vietnam’s rapid growth and potential when it established Suncity VIP Club at the Crown Plaza Danang two years ago. This foray into Vietnam was to “test the water and warm up the market,” as Lo puts it. Furthermore, Suncity has entered into an agreement to provide technical and pre-opening services to a resort project in Van Don, located in the Quang Ninh province. “With a total investment of $2 billion, we believe the project will become Vietnam’s latest tourist landmark,” Lo states confidently.

Regional presence

Vietnam is just one piece of the jigsaw, though. Across the border in neighboring Cambodia – one of the world’s fast-growing gaming hubs – Suncity has forged a strategic partnership to provide consultancy services for a $360 million IR being built by Golden Sun Sky Entertainment in Sihanoukville, a once sleepy coastal city now awash with Chinese-run casinos and Chinese tourists. Suncity Group has also long been cooperating with NagaWorld, the only casino resort in the capital, Phnom Penh, and last year opened its first VIP club: NagaWorld Suncity VIP Club.

With the influx of visitors from China (1.27 million in the first eight months of 2018), as well as an explosion in casino resorts and foreign investment, Lo believes there is “great potential in Cambodia’s VIP gaming market,” in the coming years. More generally, from a cost perspective, it also makes commercial sense to expand into Cambodia and other parts of Southeast Asia, as he explains: “The tax rates in Cambodia, Manila and Vietnam are much lower in comparison to Macau, [while] the cost of operations, labor and hotel room allotments are comparatively cheaper. Despite the commercial risks being the same as Macau, the profit margins in these new markets are bigger.”

Elsewhere, Suncity recently inked a memorandum of understanding with South Korea's Paradise Co. on possible cooperation on Paradise Caino Busan, a market Lo says will “continue to be a key tourist destination” for Chinese travellers. Suncity has also acquired minority interest in Summit Ascent, which operates the Tigre de Cristal casino in Vladivostok, Russia. Given Vladivostok’s accessibility to Chinese visitors, combined with low gaming taxes, Lo says Russia is a “place worthwhile for investment.”

“We are very confident in pushing the two markets [South Korea and Russia], and with the VIP customer data base Suncity Group gained over the years we can bring visitors there,” Lo remarks. “Also, after the opening of Hoiana, we will have a bigger database including not only VIPs, but mass gaming customers from all over the world.”

Home sweet home

While Suncity embarks on a rapid, full-throttle expansion across Asia, what about Macau, the market where the group – or “entertainment conglomerate” as Lo describes the business – made its name? Last year the city’s 41 casinos raked in MOP302.85 billion ($37.4 billion) in GGR, a 14 percent rise over 2017, but despite a forecast slowdown in 2019, is Lo bullish about Macau’s prospects?

“After the drop we had in 2014, the junket industry paid a huge lesson. I believe our industry is much better at risk-control management and more sensible with decision making [now].”

He continues: “The operation strategy has changed; for example, the rolling out of our VIP Clubs now are similar to the peak period back then, but the number of customers is three times [the amount] than before, so the financial risk is more diversified. Since August 2016, the industry has continued to grow for 29 months, and I expect this year's economy is full of variables. I believe we will not experience long-term declines or long-term growth as before.”

Furthermore, the first of Macau’s casino concessions and one sub-concession are due to expire next year, while the rest will run out in 2022. With Suncity’s lofty ambitions and investments in IRs of late, it wouldn’t be a total surprise to see the business in contention for a casino license, although Lo refuses to be drawn on whether this is part of Suncity’s plans. That said, the group is developing a Suncity-branded hotel in Macau. According to Lo, it will be a “party-themed” hotel with high-end shopping and unique entertainment like movie theatres, an art gallery and auctions.

“We believe a self-branded hotel will help to strengthen our brand and promote our businesses. I believe that we will be one-of-a-kind in the market. With the long-established industry advantages and experiences of Suncity Group, we are absolutely capable of creating a new consumption model and improve the current situation of the gaming industry.” He adds: “Through our experiences as a leading junket in Macau, we know our customers’ preferences and have established high-service standards.”

Looking ahead, Suncity Group has deployed a multi-pronged approach to expanding the group’s interests and revenue streams, as well as expanding its footprint across Asia. The group is now far more than just a junket business supplying Macau’s casinos with VIP players from Mainland China. The ambitious Hoiana project – Suncity’s first IR – will be a major milestone in the journey and could truly take the group to the next level. All eyes are now on the first phase of the development and whether it lives up to expectations. If it does indeed deliver, and brings in hordes of foreign visitors, it would confirm that a junket business being invested in a casino resort project is a winning combination.

 

 

Asia Gaming Brief is a news and intelligence service providing up to date market information for worldwide executives on relevant gaming issues in Asia.

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