Taking stock

Asia’s gaming markets have seen a strong first half, with Macau, the Philippines and Cambodia leading the way, prompting some analysts to revise upwards their targets for the full year.

But it hasn’t all been plain sailing; the fatal attack on Resorts World Manila lead to a suspension of its gambling operations in June, while South Korea continues to underperform after a diplomatic spat with China, which banned tour groups after Seoul agreed to deploy a U.S. missile shield.

Some operators have capitalized on 1H17 market trends better than others – Wynn Resorts took advantage of the uptick in VIP play in Macau – but Genting Singapore struggled to move forwards, posting a 4 percent YoY Q1 decline in gaming revenues.

“Looking at casinos in Asia, there are grounds for optimism given the financial performance in the first half of the year,” says Lorien Pilling, director at Global Betting and Gaming Consultants (GBGC).

“Much of the improvement over 2016’s performance seems to be down to better gross win from the VIP segment, either in the form of higher rolling chip volume, a better gross win percentage on that volume, or a combination of the two.”

Macau has delivered the biggest surprise in 1H17 with visitor numbers topping 13.2 million during the period, up 6.3 percent. 

GBGC says that in total, gaming revenues jumped 17 percent in the first half of the year. In particular, VIP baccarat gross win was up 16 percent YoY in 1Q17, which Pilling says was “the best quarterly performance” for the segment since 1Q15 in terms of actual values. VIP Baccarat Q1 17 was MOP35.49 billion which was the highest amount for any quarter since Q1 15's MOP37.67 billion.
VIP revenue in Q2 continued to accelerate, posting a 34.8 percent year-on-year gain, far outstripping the 8.1 percent increase in the mass market.  

Among the top performers in Macau in 1H17 was Galaxy Entertainment, which managed to gain market share in both VIP and mass. Morgan Stanley estimates its VIP revenue was up 16 percent YoY in 2Q, with mass increasing 21 percent during the same period.

“One standout remains Galaxy Entertainment, which continues to grow its share of the lucrative mass market despite significant new supply coming online over the past year,” says Grant Govertsen, managing director at Union Gaming Securities Asia.

“They have done a terrific job reimagining their food and beverage department, while also adding entertainment options that haven’t been seen before in Macau."

In a recent analyst note, Morgan Stanley revised its full year outlook for Macau given the solid performance in 1H17, increasing GGR growth to 15 percent (from 12 percent) driven by a 16 percent (vs 14 percent) rise in VIP play and a 14 percent (vs 11 percent) increase in mass revenues.  

“We keep our 2018 GGR growth forecast unchanged at 9 percent. This drives industry EBITDA up by 3-4 percent over 2017-19, implying annual growth of 23 percent in 2017 and 10 percent in 2018 and 2019,” the note added.

Medium-to-long term optimism in the Macau market is being bolstered by several factors, mainly infrastructure improvements and low penetration in China.

But Morgan Stanley says there is some cause for concern, citing three factors; the recent suspension of UnionPay card withdrawals at ATMs without KYC features, requirements to report overseas cash withdrawals/transactions over USD$150 and the declaration of cash/cheques over $15,000 to customs.

Away from Macau, the Philippines is the star performer over the first six months of the year. Morgan Stanley estimates 2Q17 EBITDA to have jumped 27 percent YoY to $138 million, with GGR (excluding PAGCOR) up 26 percent to $577 million.

The Resorts World Manila attack and resulting suspension of gambling activity for the month of June obviously impacted the market – despite PAGCOR stating the contrary – but regardless, operators have still been able to drive growth.

City of Dreams Manila saw rolling chip volume grow 60 percent to $2.4 billion in 1Q17. A particularly high win-rate of 3.4 percent on that volume also helped net revenues reach $157 million, up 65 percent.

Shaun McCamley, partner at GMA, says City of Dreams and the Solaire Resort and Casino have also bolstered revenues through an uptick in phone betting – “with the incident at Resorts World, phone betting is likely to grow even more,” he adds.

The disruption in other markets such as the Philippines has benefited other jurisdictions such as Cambodia.

Govertsen says NagaCorp had a “very strong first half” with gaming revenues up an impressive 40 percent to $387 million, with an 89 percent increase in gross win from the VIP segment behind much of the growth.

“Growth in Cambodia is being driven by a variety of factors, including a strong economy, accelerating visitation, and increased VIP business,” he adds.

Analysts are also buoyed by progress being made in other Asian markets, particularly Vietnam where locals look set to be finally allowed to gamble at two designated casinos by the end of the year as part of a three-year pilot scheme.

The casinos are located in Van Don and on Phu Quoc Island, with a third in Ho Tram likely to be added to the list. By the end of the trial, the predicted number of tourists visiting Van Don is expected to hit 1.7million, including 900,000 international visitors.

As in other markets, local visitors will have to pay an entry fee – VND 1 million per day or 25 million dong per month – and with average incomes under VND 4 million per month, this will likely act as a barrier to most Vietnamese.

McCamley also raises concerns over regulation and licensing, and says nothing is going to happen quickly.

“There is still no legislation in place to govern the industry and this, coupled with remote locations – some with inexperienced management teams and having no savvy marketing programs – means slow revenue generation.

“Depending on which location, and most importantly depending on how experienced the management team are, I don’t see GGR in the first year going north of $100 million.

“It will take a number of years and several properties able to accept locals before Vietnam’s own gaming culture will emerge,” he adds.

Elsewhere, business is booming and competition remains fierce. This, says Pilling, will ensure the market continues to fire on all cylinders in the second half of the year.

“Competition is good for the market and there is such demand for casino gaming in Asia that 2017 could be a strong year, especially if the VIPs are returning in certain markets,” he adds.