Cambodian doors to close as Vietnam opens to locals?

Cambodia’s gambling industry is eyeing moves to open up the market in neighboring Vietnam with trepidation, though views are mixed on the potential impact.

Casinos lining Cambodia’s border with Vietnam have long benefited from traffic from Vietnamese who have been banned from gambling at home. Vietnamese are estimated to spend about $800 million annually gambling overseas, with a large chunk of that funneled into its neighbor’s casinos.

The country has 65 operating properties, mostly small and in frontier towns such as Bavet. The country allows online gaming and sports betting, which has also attracted large numbers of Vietnamese gamblers.

Vietnam, in January, finally lifted its long-standing ban on locals gambling, though on a limited basis. They will be allowed to enter two designated casinos, one in Van Don in the far north and one on Phu Quoc in the south. It is not yet confirmed whether Vietnam’s Ho Tram Resort and Casino will be approved to serve locals. They will also be allowed to bet on sporting events.

Ros Phirun, a deputy director-general of the Cambodian Ministry of Economy and Finance's financial industry department, played down the impact on land-based casinos due to the distant location of the two casinos in Vietnam where gambling will be allowed.

“Of course, we will definitely get some effect by the new move from the Vietnamese government. But, it doesn’t mean that it severely affects the whole industry here because they will only let local people gamble at two selected casinos which are really far from us,” Phirun told a local newspaper.

“Our casinos are mainly at the Bavet border near Ho Chi Minh City where 90 percent of the Vietnamese are coming from.

“Also, I don’t see many Vietnamese from the north coming to gamble in Bavet. I don’t think their local people will spend many hours driving so far to a casino,” he added.

However, Phirun concedes the lifting of the sports betting ban over the border may have more of an impact.

“For Cambodian casinos, we allow all types of games online and that includes live betting, sports and lottery,” he said. “While it is still a relatively new market it attracts a lot of Vietnamese gamers.”

He added that Cambodian operators were far from dependent on Vietnamese gamblers.

However, analysts weren’t so convinced, with some saying many of the border casinos are already struggling and this will inevitably have a major impact. Cambodia is also expected to introduce a new regulatory regime later this year that may impose a new tax structure and capital requirements.

“We do expect the border casinos in cities like Bavet Cambodia to bear the brunt of the downside as the border casinos are significantly easier to reach than Naga and have historically captured the lion's share of Vietnamese customers. We would expect many to struggle to survive over the duration of the 3-year Vietnam locals pilot program,” Union Gaming analyst Grant Govertsen wrote in a note.

He adds however that the country’s biggest casino, NagaWorld, is unlikely to be badly hit, at least under the current terms of the three-year Vietnamese pilot scheme. Naga is based in the capital Phnom Penh and has a monopoly in a 200km radius of the city.

“Over the years as Naga has grown its mass market story - driven in large part by expats living in Phnom Penh and riding the wave of foreign investment into Cambodia - the company's reliance on Vietnamese customers has declined significantly.”

Union Gaming puts the property’s exposure to Vietnam in terms of GGR at less than 5 percent on mass market and slots and even lower for VIP. However, the firm has adjusted its EBITDA forecasts on the assumption that the central property of Ho Tram will eventually be included in the project to allow locals to gamble, which could divert traffic.

The forecast for 2017 and 2018 EBITDA was cut by 3 percent and 2 percent respectively.

Anthony Galliano, CEO of Cambodian Investment Management, agreed that the impact would be felt mainly on the border. He was cited in local media as saying the Vietnamese developments, together with new laws at home would be the “death knell for the already struggling border casinos.”

Last year, the government saw a 40 percent increase in the amount it collected from the country’s casinos, due to higher volumes, better collection efforts and an accord with NagaCorp to incorporate non-gaming activities.

NagaCorp reported revenue increased 5.5 percent to $531.6 million in 2016, up from 503.7 million in 2015 and analysts say the outlook is rosy as the company teams with the government to promote Cambodia as a tourism destination to Mainland China.

The operator said it saw strong performance in its VIP segment, with VIP rollings up 11 percent to $8.7 billion. The growth was attributed to its revised overseas junket incentive program which was introduced in January 2016.

Its mass market segment also showed improvement, with mass market table buy-ins increased by 12 percent to $617.8 million in the year, while mass market electronic gaming machines bills-in increased 9 percent to $1.5 billion.

The Cambodian government is targeting 7.0 million visitors, of which 2.0 million are Chinese, by 2020 compared with 4.4 million visitors in the first 11 months of 2016, of whom 737,000 were Chinese.

“We believe Naga will be a major force to help attract tourists to Cambodia and this should help grow Naga's profits going forward,” Citi Research said in a note.

However, elsewhere fortunes were more mixed. Australia-listed Donaco International’s Star Vegas property in Poipet saw its H1 revenue drop almost 16 percent as the death of Thailand’s king affected border traffic.