Junkets eye Cambodia’s VIP potential

Tuesday 1st of May 2018

Macau’s junket operators are increasingly focused on Cambodia, drawn in by growing business ties with China and its location between countries that don’t allow locals to gamble.

SunCity Group, Macau’s largest junket, on March 1 launched its first VIP Club at NagaCorp’s NagaWorld property in Phnom Penh, encouraged by the rapid growth in Chinese tourists to the kingdom.

NagaCorp opened the second phase of its resort, Naga2, in November adding a further 300 gaming tables to the property. Analysts say the new extension pushes up the standard of facilities and entertainment in Cambodia, increasing its appeal to VIP gamblers.

In e-mailed comments to AGB, Suncity Group said the operator's involvement in the kingdom highlighted the "great potential" in Cambodia's VIP gaming market.

Ben Reichel, executive director of the Australian casino operator, Donaco International Ltd, which has a property in the western province of Poipet, said SunCity's move to Cambodia was "pretty significant". "Suncity is a group that has been actively looking to expand beyond Macau," Reichel told AGB.

"Naga does have a fantastic property and the new extension - Naga2 - I think people seem to be blown away by how good it is," he said.

The positive outlook for the VIP market in Cambodia has been driven by a sharp rise in arrivals from China - up over 40 percent in 2017 - to 1.2 million, surpassing that of Vietnam over the same year, to become the largest source of tourists in Cambodia. Properties across the country, especially in Sihanoukville, are also being upgraded expanding the VIP offering.

The Kingdom is currently in the process of introducing new legislation to cover its casinos, which will reportedly include a tax rate of about 4 to 5 percent of revenue. That's favorable enough to allow operators scope to offer better commissions than the 1.25 percent rate in Macau, where operators pay 39 percent tax.

Low labor costs, coupled with economic reform are driving a surge in foreign investment, increasing business travel. Based on statistics from China’s Ministry of Commerce, China’s cumulative foreign direct investment in Cambodia increased from US$1.1 billion in 2010 to US$3.7 billion in 2015, representing an increase of approximately 236.4 percent.

"Chinese gamers will definitely be the main source for the VIP market in Cambodia," SunCity said.

For Q1, 2018, VIP volume at Naga was up 51 percent on the prior year to $5.6 billion. However, this was significantly lower than the $10.1 billion in Q4 that came on the back of the Naga2 opening. Overall gross gaming revenue surged 181 percent.

Union Gaming analyst Grant Govertsen said he expects the VIP numbers to ramp up again as SunCity becomes more established.

“This will be boosted by the addition of another Macau junket during 2Q. We are comfortable with the trajectory in VIP at Naga but are lowering our estimates to account for the slower start to the year,” he said in a research note.

Cambodia has 65 licensed operating casinos with most located in the provincial areas of Poipet and Sihanoukville, while NagaWorld’s license restricts competition within a 200 km radius of Phnom Penh.

In December last year, junket Amax International entered a three-year accord to operate a VIP room at the Genting Crown Casino in Poipet. Under the agreement, the company will outsource the operation of the VIP room’s 13 VIP baccarat gaming tables to an undisclosed third-party junket operator, which the company described as “one of the top junkets” at its now-defunct Greek Mythology Casino.

Describing its investment rationale, Amax pointed to the growing business ties with China, but also the location of casinos on strips between border checkpoints, allowing foreign nationals to enter and gamble without requiring visas. A new rail line is also expected to open in 2018, cutting the travel time to the area significantly.

“Due to the excellent geographical location and given the fact that gambling is prohibited in Thailand, Thai nationals have long been the one of the major customers of the casino,”
the company said in a stock exchange filing. “Recently, with the economic growth of Cambodia driven by the close business relationship between Cambodia and China, China visitors have become the new growth driver of the VIP room business of the casino.”

But Amax also warned the VIP market was volatile and sensitive to economic downturns, and other factors affecting discretionary consumer spending.

Donaco's Star Vegas casino in Poipet is now rebuilding its business, including its junket market, after taking full control from its Thai partners, with whom it is now in litigation. Donaco is claiming US$120 million in compensation through arbitration in Singapore.

But Reichel says the way forward is "positive.” Its business is largely sourced from neighbouring Thailand, where gambling is banned. Thai consumer spending is expected to accelerate after being dampened by a year-long period of mourning for the former king.

"Our business in Poipet has always been aimed at the Thai market. So it’s primarily people from Bangkok and some of the other provinces close to the border," he said.

The next step for Donaco, he says, is to draw more from the international market. "That means primarily Chinese [but] there's also quite a few people from Indonesia, Malaysia, [South] Korea, even Japanese [expatriates from Thailand], he said.

Suncity for its part is upbeat for the gaming industry regionally. "We are [also] optimistic that we should see strong business growth in Cambodia too this year," the company said.

"We can foresee many potential opportunities in Cambodia and are open to [being flexible]," it said.