China interest rising as visitation grows

A strong economy, stable political environment and rising visitation are all helping to fuel growth in Cambodia’s casino industry, with a total of 79 licenses now having been issued in the country.

Most of the new licenses have been in Preah Sihanouk province, in the coastal province in the south, though with local Cambodians banned from gambling the majority of the existing properties are clustered around the borders to take advantage of demand from neighboring countries which also bar residents.

“Casino companies continue to flow into Cambodia with a marked increase in Chinese-owned casino operations recently,” Ros Phirun, deputy director of the finance industry department at the Ministry of Economy and Finance was quoted as saying in local media.

Visitation to the country has been strong, gaining 13 percent to 2.3 million in the first five months of 2017, while arrivals from the key China market jumped by 36 percent to 0.4 million visitors, overtaking Vietnam as the top source of arrivals. The Tourism Ministry is targeting 7 million arrivals by 2020, with 2 million of those coming from China. 

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NagaCorp 17Q1 VIP business tops forecasts

NagaCorp recorded a 34 percent increase in VIP rollings for the first three months of 2017, beating analysts’ expectations. VIP Business (rollings) were US$3.7 billion, compared to US$2.8 billion in 2016. Mass table buy-ins increased 13 percent to US$169.4 million, while EGM bills-in increased 10 percent to US$417.3 million. Union Gaming raised its full-year VIP business forecast following the results. “Seeing VIP volumes growing nicely at the capacity constrained NagaWorld casino gives us a higher degree of confidence in Naga2, which should open later this year,” it said in a note.

The International Monetary Fund is projecting real Gross Domestic Product to grow at 6.9 percent in 2017 and 6.8 percent in 2018, with an inflation rate of 3.2 percent and 3.1 percent respectively.

The strong tourism growth figures were reflected in the first half results of the country’s largest casino operator Nagacorp. The Hong Kong-listed company has a monopoly within a 200 km radius of the capital Phnom Penh.

The company posted a 20 percent increase in net profit to $150.6 million, with its VIP business proving particularly robust, with rollings gaining 71 percent to to $7.8 billion.

Mass market table buy-ins also saw growth, reaching $375.2 million, an increase of 23 percent year-on-year, while mass market EGM bills-in increased 15 percent to $853.1 million.

Overall gross gaming revenue rose 40 percent to reach $386.8 million. 

NagaCorp said the growth in GGR and business volumes was attributable to continued confidence in the political climate and social order of Cambodia’s operating environment - leading to increasing visitation, especially from China.

Confidence in Cambodia’s operating environment has also lead to increasing economic activity, resulting in increasing numbers of investors and a growing expat population in Phnom Penh and driving footfall into NagaWorld.

“All metrics came in significantly above expectations,” Union Gaming wrote in a note.

The firm has raised its 2017 EBITDA estimate by $10 million to $284 million and its 2018 estimate to $392 million from $387 million.

“While current business volumes would suggest our estimates are going to be light, we think it is prudent to build in some cushion in order to allow Naga2 time to ramp to steady-state operations as we expect margins to temporarily take a hit.”

The $369 million second-phase expansion is expected to open in October and will have a total built up area of about 110,105 sqm. It will add non-gaming amenities such as a theatre with a capacity of about 2,100 and additional gaming space, with a further 300 tables and 500 electronic gaming machines.

The new hotel space at the complex will add 1,000 new rooms and 38 VIP suites. The founder and CEO of Nagacorp, Tan Sri Dr. Chen Lip Keong is currently in the process of consolidating his control over the operator through the concurrent conversion of bonds.

The transaction will see his stake rise from about 38.98 percent to 65.4 percent.

However, that decision has been challenged by hedge fund Nine Masts Capital, which claims minority shareholders would face unfair dilution to their holdings. Under a new formula put forward by Nine Masts, Chen’s stake would rise to just under 63 percent.