Thursday, August 18, 2022

APE to make market debut, sees strong growth

Asia Pioneer Entertainment, which this month joins just a handful of homegrown Macau gaming names to list on the Hong Kong Stock Exchange, says it sees strong scope for future growth, both in the world’s biggest gambling hub and around Southeast Asia.

The gaming distribution and service company was founded 12 years ago by Herman Ng Man Ho and Allen Huie Tat Yan and has expanded in tandem with Macau’s gaming industry. When the company first set out, electronic gaming machines were a sideshow in the territory, which was dominated by VIP baccarat.

However having lived overseas and noting the popularity of slot machines, the two executives predicted there would also be growing interest at home.

At present, only about 5 percent of revenue in Macau comes from gaming machines, compared with about 70 percent in Las Vegas, but that number has been growing steadily and has proved a lot less volatile over the recent downturn than table revenue, in particular from the VIP sector.

There have been several factors contributing to the growing popularity of slots and gaming machines in Macau, not least the new openings of multi-billion dollar resorts on the Cotai Strip that have added thousands of new products. A cap on live table tables by the Macau government has also helped to increase a push towards machines, as has an increased focus on the mass market, with more than 25 million tourists a year now visiting.

APE attributes its success on this macro shift in the market, combined with its in depth local knowledge of the operators, regulations and local gaming behaviour.

“With the table cap, live gaming is limited, but tourist numbers are growing and not all can be high rollers,” Ng said in an interview.

Huie describes the company as a technical services solutions provider of electronic gaming machines, and is one of just a handful of local agents. The company provides an integrated service from distribution to the operators, through to repairs and consulting on how to get games through Macau’s notoriously complex approvals process.

“It may look easy, but there’s a lot of technique to get it right for the market, to launch any product onto the floor you need a lot of experience,” says Ng. “Once you are on the floor there is no room for mistakes.”

Although the market has undoubtedly been driven by new openings, those are now slowing down, with just two major players still to open their doors in the coming years. MGM China will open MGM Cotai in the first quarter of next year, while SJM Holdings’ Lisboa Palace has been delayed most likely to 2019.

Despite, the end of the IR pipeline, APE says there is still plenty of room for growth in the Macau market. There are currently 18,000 machines on the floor in Macau and that will rise to 25,000 over the next two years. Beyond that, there will be ongoing renewals and servicing requirements that will keep the company busy.

However, Ng notes that the casino floors are by no means at capacity. He says in theory, Macau’s casinos could accommodate up to 50,000 machines, but a lot will depend on China’s appetite for expanding the gambling market.

“If China can open the door bigger, the operators will buy more slot machines, there is space on the floor,” he says.

Still, APE is no longer wholly focused on its home market and sees major room for expansion in both Southeast and East Asia. The company has already moved with the Macau operators overseas, following Melco Resorts & Entertainment into the Philippines and also supplies equipment and services to Genting in Malaysia.

Although the minimum bets in the Philippines are lower, APE says there is a higher ratio of machines and more of a propensity towards social entertainment-driven games. “I would put more social games into the Philippines to test, as you never know until you try,” Ng said.

To push the company to the next level, it’s now holding an initial public offering to raise between HK$60 million ($7.7 million) and $90 million, with the shares scheduled to begin trading on the Growth Enterprise Market on November 15.

“We went for a listing for several reasons,” Huie says. “The key was to access capital markets to fund our business plan as we move forward, but also to get better brand name and awareness, which will be supportive to suppliers and manufacturers.”

“We are very well known to our casino customers, but hopefully this will get us known in a newer market in southeast Asia as well.”

Huie says the reaction from high net worth individuals and institutions the company has held talks with so far has been positive. “They like what we do.”

The company plans to use the funds for deposits to support suppliers in getting more trial products on the floor and also to expand its technical support facilities in Macau, with a new workshop and increased technical support staff.

It also sees opportunities for leasing for selective customers, which it says should provide  decent returns for the company.

Another area for potential growth is in refurbishments, as machines in Macau are replaced. Refurbished models can’t be resold in Macau, but APE says it’s getting a lot of enquiries from places such as Cambodia and Southeast Asia. Most are trading companies that take refurbished machines and distribute them through their channels.

As one of the few truly local gaming companies, APE says it’s confident that in the future Macau will have more home-grown talent in the industry, not just in distribution but also in product design.

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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