Friday, September 30, 2022

Naga plans to curl around China

NagaCorp doubled the footprint of its Cambodian casino with the opening of the Naga 2 complex earlier this month, but the Hong Kong-listed operator is not content to stop there, with its founder outlining a vision to become a global hospitality group.

The company, which was recently valued at more than $5 billion by Colliers International Hong Kong, started on a barge in 1993 after a United Nations coalition government was formed to restore peace and rebuild the war-torn nation.

The gaming license was awarded to a company run by founder and CEO Tan Sri Dr Chen Lip Keong as part of a contract to build an airport in the seaside town of Sihanoukville. Chen saw through the problems plaguing the developing nation to envisage the possibilities for tourism in a country with a rich cultural heritage, bordering China, Thailand and Vietnam and close to Malaysia and Singapore to the south.

Since its initial public offering in 2006, NagaCorp has proved to be one of Asia’s success stories, generating $1.2 billion in net revenue since that date. The company has enjoyed compound average revenue growth of 19 percent for each of the past five years and management expects that double-digit pace to continue, driven by economic expansion, increased foreign direct investment and strong visitation, in particular from China.

To be sure, the company’s favorable license conditions have helped it get ahead. It has a monopoly until 2035 in a 200 km radius of the capital Phnom Penh, while its actual license runs through to 2065.

In a media briefing at the opening of Naga 2, Chen, in rare public comments, set out how he sees the company developing over the remaining 18 years of license exclusivity, which he breaks into three distinct phases.

In the first six years, he wants to ensure the success of the Naga 2 development. The resort opened on Nov. 2 with 35 tables and 300 slot machines, but has capacity for 600 tables and 500 electronic gaming machines, from 300 and 1,660 originally.

The extension adds an extra 903 rooms, taking the total to 1,700, as well as MICE space and more than 3,800 square meters of duty free retail. It also elevates the service and entertainment offerings to a level not yet seen in Cambodia, with regular on-site performances both traditional and modern, and the 2,200 seat theatre expected to open in January showcasing regional and international singers and shows.

The resort was designed by U.S. architects Steelman Partners. Particular emphasis has been given to the stunning light fixtures throughout, with partner Paul Steelman saying lighting can contribute as much as 35 percent to gross gambling revenue. The investment in Naga 2 was $369 million, taking the total for both phases of the property to $1.5 billion, with a substantial chunk financed by Chen who is the largest shareholder.

As part of this six year phase, Chen also wants to make sure the company’s plans for a resort in the Russian region of Vladivostok are firmly on track, with construction on the $350 million IR due to begin this month. He said there is a lot of excitement about the potential for the project in the Primorye gambling zone due to its proximity to Northern China, Japan and South Korea, though he concedes infrastructure is still an issue in getting visitors through the doors.

“We talked about infrastructure projects, we try not to build monuments but to build jobs, we help build the nation.”

Chen also hopes by the end of this first six-year period to have firmed up plans for Naga 3 in Cambodia.

In the past, management has said that a third stage would be likely to incorporate more non-gaming facilities, such as a water park, to appeal to the region’s growing middle-class family leisure market.

Although the NagaWorld property has benefited from improved flight links and visitation from China, the company has also been focusing on building visitation from elsewhere in the region, in particular in Southeast Asia. It says Naga is responsible for bringing in nine out of every ten Malaysian tourists to the country and high rollers from that nation make up 40 percent of its VIP revenue.

Minimum table bets for the mass sector are currently $40 for the mass market at peak hours and $100 to $200 for VIP, much cheaper than in Macau. While, Cambodia’s lower cost base also makes it an attractive weekend leisure destination for visitors from Malaysia.  

Most analysts are bullish on the company’s prospects, though a government crackdown on opposition parties has raised political tension in the country, especially in the run up to general elections next year.

For the next stage of development, Naga plans to take its expertise in emerging markets to other developing nations. Chen points out the company is debt free and has the capital to move forward.

Of particular interest are the nations circling China to benefit from the predicted 200 million outbound tourists by 2020.

He says he has already had talks with officials in Mongolia and Kazakhstan and has also looked at Nepal.

“It’s a challenging environment,” he said referring to Kazakhstan in particular. “But I think we can make it work in these emerging markets, we are emerging market specialists.”

The company, like most global operators, has also looked at Japan and held meetings with regional officials in Hokkaido about opportunities there. However, Chen says the investment figures being talked about may be too high. He has also had talks with officials in the northern Australian state of Queensland, who he said had been impressed at how much Nagacorp had been able to achieve on a limited budget.

Queensland is looking for new investors after several multi-billion dollar IR projects fell through after the recent slump in VIP revenue highlighted such investment levels were unlikely to be sustainable.

In the final six years, Chen sees a push to make Nagacorp a truly global concern.

“We want to be a global hospitality provider,” he says, flying the flag for his native Malaysia.

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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