Cambodia's Sole Casino Booms as Macau's Languish Amid China's Anti-Graft Crusade
Yicai Global
/SOURCE : Yicai
Cambodia's Sole Casino Booms as Macau's Languish Amid China's Anti-Graft Crusade

(CBN Global) April 8-- While Macao'scasino magnates fret about slumping profits, business at Cambodia's sole legal gaming house is booming as Chinese punters desert their traditional gambling hub for the new one down south.


NagaCorp Ltd.[HKG:03918],which runs the only legal casino in Phnom Penh, had a sterling first quarter, the company's just-released financial report shows. Gaming revenue jumped 35 percentfrom a year earlier, while turnover at its VIP gaming hall soared 65 percent.

Macao's casinos have gone from boom to bust as profits at every major venue have steadily dried up since 2013 as the number of visitors from the mainland dwindled amid China's anti-corruptioncrusade. NagaCorp, listed in Hong Kong since 2006, seized the opportunity to expand business, luring more punters and swelling its earnings year after year.

NagaCorp's net profit gained 27 percent to USD173 million in 2015, according to the company's financial report. Revenue from gaming rose 26 percent toUSD481 million.

During the same period, earnings at Macao's casinos deterioratedsharply. Combined net profit at the top five -- SJM Holdings Ltd. [HKG:0880], Sands China Ltd. [HKG:1928], Galaxy Entertainment Group Ltd. [HKG:0027], Wynn Macao Ltd. [HKG:1128] and MGM China Holdings Ltd. [HKG:2282] -- slumped almost 50 percent as total gross income dropped nearly 30 percent.

'King of Gambling'

Nicknamed the 'King of Gambling,' Mr. Stanley Ho's SJM Holdings saw net profit plunge 63 percent to HKD2.4 billion (USD309 million)last year from a year earlier.


Profits and revenues at NagaCorp have risen steadily over the past three years, and it is not just income from gambling that has gained, but also revenue from the company's related hotel, entertainment and shopping businesses.

It is illegal for Cambodians to gamble under the country's gaming laws. NagaCorp makes its money mainly from foreign tourists, with most visitors hailing from China as well as neighboring Vietnam and Laos. The number of Chinese visitors jumped 24 percent last year, well exceeding the country's 6 percent growth in overall touristnumbers that year.


NagaCorp does not break down its revenues based on where visitors come from. But judging from recent statements it has made about its strategy and its annual report, Chinese punters are clearly the biggest driving force behind the company's profit growth.


As Chinese flock to Phnom Penh, NagaCorp has begun working with some foreign travel agencies and airlines to start direct flights to Cambodia. Since January, there are three direct flights every week from Changsha in China's south central province of Hunan and southwesterncities. Flights from other cities are planned. To encourage more Chinese tourists to visit Phnom Penh, NagaCorp has eveninvested in improving traffic facilities in and around Cambodia's capital.


Duty-free shopping

NagaCorp plans to launch a retail street in Phnom Penh close to the casino, according to its annual report. State-owned China Duty Free Group Ltd., the country's biggestduty-free goods carrier, will become the owner-operator ofa duty-free outletin this retail development.


Other than income from independent Chinese travelers, NagaCorp has also created another lucrative revenue stream with intermediary gaming organizations. In 2015, five local major gaming brokers contributed 32 percent of the casino's revenuein total, equivalent to CNY1.06 billion (USD163.9 million). The biggest gaming broker alone contributed almost CNY300 million.

The honeymoon between NagaCorp and the gaming intermediaries is in sharp contrast to the dismal business conditions that Macao's gaming promoters faced in 2015. Neptune Group Ltd. [HKG:0070], Macau's main gaming junket operator, reported a shareholder loss of HKD250 million last year.


The Macau casino "VIP business has been in a pool of stagnant water for the third year running,"Neptune Group said in its annual report. "The current precarious situation has persisted for more than a year, the intermediary in despair has no other choice but to offload its bad debts and non-performing assets, selling them to third party financial investors at substantial discounts to market prices."

NagaCorp enjoys a monopoly in Cambodia. Its swayover gaming licenses far exceeds that which Mr. Stanley Ho enjoyed during the height of his influenceover Macao's gaming industry.


70-year license


According to the 1995 agreement between NagaCorp and the Cambodian government, the company has a casino license that cannot be revoked for 70 years. If the government for any reason terminates or revokes the license before expiry, it needs to compensate the casino. NagaCorp also enjoys the exclusive right for 200 kilometers around Phnom Penh to operate a casino until 2035. The government cannot issue other gaming licenses in this area or permit other gaming activities.

In addition to its exclusive license, NagaCorp also has almost absolute freedom in how it runs the business. The agreement states that the company "has the right to locate the casino anywhere within the specified area or entertainment centers. It can unilaterally operate and manage games and all forms of gaming without the prior approval of the Cambodian government. Operating hours for the casino are also unrestricted."


The agreement was signed when Mr. Hun Sen was prime minister of Cambodia. Despite the country having changed leader several times, the casino's franchise has not been affected in any way. It has been more stable and constant than any government. The current administration reaffirmed in 2014 that the casino's license is valid for 70 years.


NagaCorp's influence is not just limited to Cambodia. The company has also invested in a gaming and resort village in Vladivostok, Russia. The project is expected to be completed in 2018. NagaCorp hopes to see Chinese punters there too.


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