Reshaping The Grand Ho Tram into an IR: EBITDA is king

Since coming in four years ago, gaming veteran Walter Power has flipped the script on the Grand Ho Tram Resort, leveraging decades of experience in Macau to shape it into a true integrated resort (IR), drawing the expat crowd from nearby Ho Chi Minh and further abroad.

The CEO has high hopes that locals will be allowed to gamble in the future, boosting government revenue, while also revamping the group’s gaming floor and delivering exciting events – focusing on driving EBITDA ever-higher.

We’re joined today by Walter Power, the CEO of The Grand Ho Tram Resort and Casino. Thank you for being with us.

Glad to be here. My pleasure.

You have a lot of experience in gaming – over 30 years’ experience in gaming, I think 18 years of which were spent in Macau.

That’s right. Yeah.

And then about four years now that you’ve been with Grand Ho Tram.

That’s right.

How would you compare those vastly different gaming markets of Macau and Vietnam?

Yeah, it’s very interesting. You know, first thing I would say is that even a place like Macau has transitioned over the last 18 years. When the team opened up the Sands Macau, which was the first Western casino in Macau, Macau was vastly different than it is today. And, being isolated out of Macau for three years during COVID, I came back recently and I can just tell the difference even in the short time that I had been away.

So, it was a developing market when I got there; it’s certainly a mature market currently. But, that being said, with the changes in VIP/mass market, Macau has changed dramatically and I’m quite optimistic about Macau’s future in that regard. But it is certainly changing.

Vietnam is, you know, casinos have been there for years. Grand Ho Tram, where I work, has been open for 10 years. But there’s been differing strategies. Because of the growth of Vietnam’s economy there’s more expats coming into Vietnam, specifically Ho Chi Minh city. And that’s changed the marketing focus of expats, toward Ho Tram. As you might know, our casino is limited to foreign passport holders. So, we have to focus on the Korean market, Taiwanese market, the Chinese market and the other expat markets, including Vietnamese with dual passports, that are located near Ho Chi Minh.

If you had to do a breakdown of the nationality of your players, what would you say it is?

In general, and I think this would apply for both numbers and revenue, approximately 40 percent of our business is from Korea. And approximately 28 percent is from mainland China. And maybe 20 percent is from Taiwan. And then you have Hong Kong, Singapore, Australian, and Vietnam – via what’s called VietQ market as well.

China has been a bit slow to open up. We were expecting that the floodgates would open back in January, but still outbound travel has been severely limited. There were some estimates that that’s going to improve within the second half of the year. Are you also seeing that trend?

I’m at a point that I’ll believe it when I see it. Having been in Macau so long, I consider myself a student of China, the Chinese economy. And even today, I watch academic think tank panels of what’s happening in China. And because of the challenges, such as the real estate market in China, the problems they had with lockdowns with COVID, the aging population decoupling, and things of that nature, I’m waiting to see what will happen.

Now that being said, China’s such a huge market that even if it’s retracted a little bit, that’s still a pretty big market segment, and something that you should not ignore. And we have a team in Hong Kong that’s promoting golf in our resort, in China and through the Chinese media sources.

Looking at Macau, we know it’s a massive local market, it has to be mostly coming from Guangdong. But you’re not able to have local play within your casino. There is the pilot program which has gotten extended by one year. What do you think is going to happen after that? Is there the possibility that locals will be able to gamble?

Yeah, I think the answer is: there is certainly a possibility. As you mentioned, the pilot program, originally set up by the Vietnamese government, was extended for two years. 2024 is the last year of that two-year extension. And I believe that the government will evaluate the results of that pilot program at the end of this year and decide what to do.

Now you could eliminate the program, you could expand the program or leave the program as is, for that matter. But I think just for the benefits that would be brought to Vietnam, I use the acronym JET to explain the benefits of gaming industry: J – the jobs that it creates, E – the economic development that it creates, and T – the Tax revenue, which may be the most important benefit that it brings.

So, we’re cautiously optimistic. We’ve already done analysis of what the tax increase would look like in Vietnam if locals were allowed to gamble. And it’s significant. We’re talking in the hundreds of millions of dollars of extra tax revenue every single year if that decision was made to allow locals to do so. And there are certainly valid concerns of the government individuals. But I think we have models such as Singapore, which is quite restrictive, other areas that are less restrictive. But I think you can find a balance to assail all the problems with problem gambling.

Luckily enough, there’s been such development and growth and maturity now within Asian gaming, you look at Macau, they just started the new 10 year licenses after the 20 years, there’s been a lot of changes within that. But that allows for them to develop a solid model, which is got data behind it.

You’re 100 percent correct. Data is the key, as I used in recent discussion, when we opened up Sands Macau back in 2004, we didn’t have really any metrics to compare, any data to compare, what we should build: how many baccarat tables versus blackjack tables. Yes, the legacy casinos such as Lisboa were operating.

But this was a brand-new ball game. And it was just a matter of us opening up and then collecting data and making decisions. And I think even in the industry as a general rule, the trend is collecting more data, whether it’s perfect pay tables through RFID chips, chip attribution to players, things like that. The more data, the better decisions you can make.

Looking at the casino floor itself at Ho Tram, you’d mentioned it’s a bit of a smaller casino, but what is the makeup. How do you divide it?

We’re currently authorized to offer 90 gaming tables. We currently have that split between 45 for VIP, 45 for mass. Primarily baccarat tables. All baccarat tables in the VIP, primarily baccarat tables on mass. And then we’re allowed to offer up to 1,000 slot machines. But we have roughly about 500 now, and that’s comprised of electronic table games and EGMs as well.

Are you looking to increase that number in terms of the ETGs/EGMs?

For us, the biggest impact will be not by expanding the number, but by renewing the gaming floor. The property was opened up a little bit more than 10 years ago. And quite frankly, when I showed up four years ago, the machines had not been refreshed, the floor had not been refreshed. So, now we’re purchasing brand-new machines. And we’re closing in 100 new machines. And you can see the dramatic improvement in slot revenue, how effective the new machines are, and how much the customer gravitates towards those machines.

That’s critical because there are so called eGaming parlors in Ho Chi Minh that are attached to five-star hotels. And so there is actually already a built-in slot market close to us that also had that foreigners-only restriction.

We’re about two hours from Ho Chi Minh, and so why would somebody drive from Ho Chi Minh two hours to play a slot machine that’s 10 years old when they can drive five minutes to a machine that’s two years old? So, right now we’re front-running that, we have the newest machines on the market, and we’ve seen dramatic and immediate results when that floor was refreshed. We’re very, very happy about that.

Looking more at the VIP side, junkets in particular, we saw the mass exodus of junkets from Macau – big changes there. How much of a focus are junket operators for Ho Tram?

That’s a good question. We certainly have a number of what are called ITOs in Vietnam – international tour operators – slash junkets, and it’s a big part of our business. But as the same was in Macau, it’s a high volume/low margin business, whereas the mass businesses is a much higher business. So, the answer to your question is: we can focus on everything. It’s just as we did in Macau, the question always becomes, do you focus on mass or VIP? Well, we can walk and we can chew gum, we can do both.

We have separate teams going after VIP slash ITOs and direct VIP players. At the same time, we have a separate team going after the mass business in Ho Chi Minh. So, it’s a significant part, but we can go after everything and the onus is about one thing: drive EBITDA. So any strategies that we can use, any metric we can use to drive that, we’re gonna certainly employ it and embrace it.

Well, that’s already worked, because since you arrived EBITDA has already about tripled or more than tripled. So, it seems to be working. Apart of that is non-gaming though. What is the percentage of revenue from non-gaming and do you expect that to increase?

That’s a good question. You know, I put it this way. One of the shortcomings of Ho Tram historically, when it first opened up, is that the operators, the management, saw Ho Tram as a beach resort with a small casino attached to it. And, coming from Macau, I realized very quickly that was an ineffective strategy.

As far as I’m concerned, we’re an integrated resort, with a casino being a central part – casino revenue being the EBITDA driver and a central part of that. So, we not only want to fill hotel rooms, but we want to put casino guests in the casino. So, I see it as one entity.

We’re an event-driven company because we’re about two hours from Ho Chi Minh, and we need to give a reason for people to make that drive. So, things such as boxing events, we engaged the WBO, one of the top organizers in the world, and mixed martial arts, kickboxing, things like that. When we hold those events, the primary target might be a certain number of casino players, but we plan on filling the place up with also non-casino players to not only sell tickets and make the cost basis lower, but to create excitement.

I don’t care how hardcore of a gambler you are; no one wants to walk into an empty lobby or an empty casino, you want to see some bodies. So, that’s what we’re trying to do. And again, if you have a casino person in a hotel room, is that non-gaming revenue or is it gaming revenue? It’s a nuanced question. But the answer is that it’s one entity. It’s a strategy that was really first embraced by Sheldon Adelson at the Venetian where his strategy was: fill the fill the place with gamblers on the weekends, fill the middle of the week with MICE business. And that’s what we’re trying to do.

Something that Macau is also trying to do. Looking at the different strategies which various casino operators or integrated resort operators in Vietnam are trying, they differ quite a bit. But do you know more or less what your market share is in Vietnam?

Actually, I don’t. It’s probably obtainable, simply because the tax revenue that we submit to the government is given – I think it’s public information. I don’t know exactly what it would be.

I can tell you that there’s three major casinos in Vietnam. There’s Ho Tram in southern Vietnam, within two hours of Ho Chi Minh, there’s Hoiana Resort in Danang. And then there’s Corona Casino in Phu Quoc Island. And so, if you started the analysis with maybe one-third/one-third, you’re probably pretty close. Probably not exactly that. But that’s because they’re so geographically separated. I wouldn’t be surprised if it’s close to that.

The first quarter has been great for most operators. We’re seeing that travel begin to commence or grow even stronger, we’ve gotten more flight connections, which are finally starting to be linked up. Can you give us any estimates for how your first quarter is going? Do you expect to see sequential growth?

Well certainly the first quarter is better than last year. Last year was three times the historical average. So, we’re pretty happy about that. But we not only want to grow up, we want to be more effective in our penetration. So, for example, last year and year before, we had customers flying in from Korea, from Taiwan.

But now we have a marketing team in Korea, we have a marketing team in Taiwan, that penetrate those markets more aggressively and more effectively. So, we’re doing things of that nature. We’re evaluating; we’re doing a data analysis of all of our events – what work, what don’t work, how can we tweak those events to not only the number, but better quality events to make them more attractive?

Well, I’m looking forward to coming and visiting the property. I haven’t yet but I expect to see some very good things and I wish you all the best in terms of the growth.

There’s an open invitation for you to come. Especially when one of our events come by. I’m most happy when I come across somebody that came for the first time, or last time, five years ago, and they walk in the door to one of our events and they’re shocked. That pleases me the most.

Well, thank you again. Walter Power, the CEO of The Grand Ho Tram Resort and Casino.

Thanks so much, appreciate it.