Asia’s casino markets are being held back by a lack of regulation, rather than lack of demand, with the underlying drivers for growth, such as under penetration, a rapidly growing middle class and strong propensity to gamble still intact.
That was the message from speakers at the G2E Asia conference in Macau this week, with analysts bullish on the prospects for the region despite the current market downturn.
Melco International Development chief gaming officer Andy Choy pointed out that Asia is underserved when it comes to casinos. The total number of properties is forecast to increase to around 230 in the next five to seven years, but this still won’t be enough.
“Casinos in this region is far underweight,” he said. “To put this into perspective – United States has 350 million people, 48 states and 1,400 casinos,” said Choy. “Asia, on the other hand, four billion people, with [currently] less than 200 casinos where gaming takes place.”
In the U.S., no one is more than a four hour drive from a casino, whereas in Asia it can be very difficult to access a property given the shortage of supply coupled with weak infrastructure and transport links.
“There are a lot of geographies we could expand into,” he said, adding the company is exploring possibilities including in Vietnam.
However, regional growth continues to be hobbled by foot dragging on the part of governments in passing casino legislation. A long-awaited bill in Vietnam has still not been ratified by the top level of government, while Cambodia has also been discussing legislation for several years. Highly anticipated framework legislation in Japan has been taken off the agenda again this year, while Taiwan has also stalled.
“Japan is the holy grail,” CLSA analyst Aaron Fischer said. “If it’s done properly with large-scale IRs in Tokyo and other major cities, it could be a $20, $30, or even $40 billion market, depending on how many properties open.”
However, he said given the regulatory standstill he doesn’t expect the first casino to open for at least six to seven years.
Vietnam is also seeing a lot of pent up demand, although industry experts said that without the regulatory certainty few are willing to make large-scale commitments.
Sam Sheng, managing director of Double Square Consulting, says he’s seeing strong interest from private investors across Asia interested in the Vietnam market. However, in his view the optimal size for an investment under current market conditions is about $250 million, far short of the $4 billion the government initially stipulated for an integrated resort in the country.
The latest draft version of the bill reportedly has cut that minimum level to $2 billion, though that has not been officially confirmed. The bill is also expected to allow access to casinos for locals in a few designated properties.
While permitting locals to gamble has been seen as a game changer for investment in many jurisdictions across Asia, some say in practice in Vietnam it’s no guarantee of success. The government is expected to only allow gambling in more remote locations, such as Phu Quoc island and not in metropolitan areas with high local footfall.
In Macau, the consensus view is that the market has now stabilized after plunging to a five-year low in 2015. CLSA expects a decline of 1 percent this year followed by growth of about 7 percent a year through to 2020. The mass market is forecast to grow at about 10 percent a year, with VIP picking up to 4 percent.
However, the heady expectations of three years ago are not going to be met.
“Everyone got a bit overexcited about the size of the gaming market if you go back to 2013,” Fischer told the opening session at G2E Asia in Macau. “Now we are forecasting revenue to stay in the low $30 billion-mark maybe reaching $40 billion over time.”
He said future growth will come from the opening of new properties, with the older ones set to lose market share. Wynn Macau is scheduled to open its new resort in summer, while Sands China will open its French-themed Parisian towards the end of the year.
According to CLSA’s research, revenue from existing properties is likely to fall 11 percent in 2018 from 2015 levels as customers migrate to new resorts.
Revenue at the Grand Lisboa is seen falling 23 percent, while MGM Macau, Sands Macau and MGM Macau are all expected to report a drop of about 22 percent. The Venetian Macau is likely to be the least affected, dropping only 1 percent from 2015 levels due its direct links to the Parisian next door, Fischer said.
Macau is also making progress on shifting its focus to the more profitable mass market, while non-gaming spending may also be on the rise, according to Bloomberg analysts.
Revenue from the mass market will account for more than 50 percent of gaming revenue as 2016 progresses, Bloomberg says. While non-gaming still only accounts for 7 percent of current visitor spending, it is on the rise, Catherine Lim and Margaret Huang said in presentations at the conference.
The comments followed from the release of Macau’s draft five-year development plan, that called for an increase in non-gaming revenue of resorts from 6.6 percent in 2014 to 9 percent by 2020.
In order to boost non-gaming spend, operators should consider shifting their accommodation offering and positioning, focus on more entertainment options such as live performances and theme parks, and for luxury brands to adjust product mix and pricing to “win back visitors”, the Bloomberg analysts said.