AsiaGaming300415e210559

Please refer to page 84 for important disclosures and analyst certification, or on our website

www.macquarie.com/research/disclosures.

GLOBAL

Inside

Search for life beyond Macau 2

Race to build Integrated Resorts 11

Following in the footsteps of the Chinese 17

Regional markets in detail 23

Macau 24

Singapore 31

Australia 37

Philippines 47

Malaysia 53

Korea 58

Japan 63

Cambodia 67

Vietnam 73

Vladivostok 75

MacVisit: NagaCorp 79

Analyst(s) Macquarie Capital Securities Limited Jamie Zhou, CFA +852 3922 1147 [email protected] Macquarie Capital (USA) Inc. Chad Beynon +1 212 231 2634 [email protected] Macquarie Capital Securities (Japan) Limited David Gibson, CFA +81 3 3512 7880 [email protected] Macquarie Securities Korea Limited HongSuk Na, CFA +82 2 3705 8678 [email protected] Macquarie Securities (Australia) Limited Andrew Russell +61 2 8232 9390 [email protected] Macquarie Capital Securities (Singapore) Pte. Limited Somesh Kumar Agarwal +65 6601 0840 [email protected] Macquarie Capital Securities (Philippines) Inc. RJ Aguirre +63 2 857 0890 [email protected] Macquarie Capital Securities (Malaysia) Sdn. Bhd. Chi Hoong Ng +60 3 2059 8985 [email protected]

30 April 2015

Asia gaming Search for life beyond Macau Asian gaming penetration by GDP and income standards remains low measured

at just 0.5% on GGR over GDP vs the developed world at >1.0%. While gaming

stocks across Asia ex-Macau are trading on just 6-12x FY16E EV/EIBTDA vs.

Macau at 14x, not all markets offer attractive risk-rewards for investors. We are

bullish on two themes: 1) integrated resorts build out on robust domestic demand

and supportive government policies (Philippines); and 2) beneficiary of outbound

Chinese gamblers (Australia, Korea and Cambodia). We also like GENM for

cheap core property valuation (7.7x EV/EBITDA), with new theme park opening.

Philippines the winner in regional Integrated Resorts race

Casino operators around Asia plan capex of close to US$50bn through the end

of the decade to build Integrated Resorts (IR). Total supply will more than double

based on room count by 2020. While there are concerns on the rising

competition to emerge as the next Macau, we think Philippines is the best-

positioned in the region, thanks to: 1) strong domestic gaming potential; 2)

Entertainment City build-out along with infrastructure improvement to rival that of

Cotai’s; and 3) supportive policy (locals allowed, no concession risks).

Chinese players are heading to Australia, Korea, Cambodia

We are structurally negative on the shrinking Chinese VIP GGR pie, but we

recognize regional gaming destinations are picking up, attracting Chinese

players who would otherwise have gone to Macau. Of the US$10bn of GGR

shrinkage likely in Macau this year (-24% YoY on our forecast), 7% or US$750m

is likely to end up in Australia, Korea and Cambodia. These markets are

expanding on a very low base and are well-positioned to tap the growing

demand from Chinese outbound gamblers whose junkets attract much higher

commissions elsewhere (up to 2% of rolling) than in Macau (1.25%).

Regional top picks: Bloomberry and Genting Malaysia

Our regional top picks are: Bloomberry and Genting Malaysia for strength of

domestic gaming. We also like Echo and GKL for a play on outbound Chinese

gamblers in Australia and Korea. We continue to be negative on Sands China,

Galaxy and Genting Singapore on structural decline in Chinese VIP market.

Macquarie Asia Pacific gaming coverage

Price TP 12m Mkt Cap PER (x) EV/EBITDA (x) Ticker Company Rec lc lc TSR US$m CY15E CY16E CY15E CY16E

1928 HK Sands China UP 32.00 21.00 -34% 33,313 22.1 31.1 14.6 16.2 27 HK Galaxy UP 37.65 26.40 -30% 20,670 28.4 35.3 17.3 17.2 1128 HK Wynn Macau UP 16.14 14.80 -8% 10,820 27.7 21.6 16.5 12.4 880 HK SJM N 9.95 11.30 14% 7,262 12.7 15.5 6.0 6.5 MPEL US Melco Crown N 20.75 22.20 7% 11,281 32.6 29.2 13.3 11.4 2282 HK MGM China N 14.72 17.00 15% 7,217 16.0 14.6 11.8 9.5

035250 KS Kangwon Land N 37,700 33,000 -12% 7,529 17.0 15.2 10.3 9.4

034230 KS Paradise OP 25,050 29,000 16% 2,127 24.0 19.7 12.5 10.1 114090 KS GKL OP 40,000 48,000 20% 2,310 17.7 14.9 10.2 8.6

GENS SP Genting Singapore UP 1.02 0.80 -22% 9,314 23.2 21.8 8.4 8.1

GENM MK Genting Malaysia OP 4.38 5.29 21% 6,979 18.3 16.2 10.0 9.1

RWM PM Travellers Int’l OP 6.78 8.80 30% 2,409 16.0 15.4 7.2 6.4 MCP PM Melco Philippines OP 9.10 11.40 25% 1,012 32.7 18.1 7.9 5.8 PLC PM Premium Leisure OP 1.64 2.00 22% 1,170 26.6 15.0 14.7 9.4 BLOOM PM Bloombery OP 11.50 14.30 24% 2,862 20.0 15.5 10.2 8.6

CWN AU Crown Resorts OP 13.27 17.00 28% 7,731 16.6 15.6 12.8 11.7 EGP AU Echo OP 4.52 5.10 13% 2,985 17.3 17.5 8.3 8.2

Source: Bloomberg, Macquarie Research, April 2015. Price date: Apr 29, 2015.

Macquarie Research Asia gaming

30 April 2015 2

Search for life beyond Macau Regional top picks: BLOOM, GENM

Asian gaming is a US$62bn market (strictly casino tables and slots) in 2014 and only $19bn

outside of Macau. As a percentage of local GDP, it is underpenetrated (<0.5%) vs developed

world (>1%) but we advise investors to be selective, and invest in markets with robust

domestic demand and favourable gaming policies. Our regional top picks are Bloomberry

(operator of the Solaire in Manila) and Genting Malaysia (Resort World Highland in Kuala

Lumpur).

We are in the midst of a major investment boom across Asian gaming markets to build

integrated resorts (IRs). Operators are pouring in up to US$50bn capex through the end of

the decade to build the next Macau. We think Philippines is the best-placed country in the

region to emerge as the next gaming destination. The infrastructure improvement planned

along with Entertainment City build-out is envisaged to rival that of Cotai’s, and most

importantly, government policies are supportive of gaming, where locals drive majority of

business and operators don’t face similar concession risks elsewhere.

Bloomberrry (BLOOM PM, Outperform)

Among Philippine gaming exposures, we like Bloomberry the most, given it has proven it's

capable of delivering results even with the challenges of having no foreign operator or partner.

They have delivered on the VIP segment, which has boosted overall volume last year. With

new capacity added (mostly going to junket rooms), we remain confident about its ability to

ramp up revenues in the next few years. We see limited downside risks to volume growth

given strong partnerships with Junkets and Solaire's unique positioning in the high-end

segment, and still having a formidable local following. While overall sentiment towards VIP in

the region, we believe Solaire has achieved scale and would maintain strong growth backed

by local volume. The stock is trading at 8.7x 2016E EBITDA on 29% earnings CAGR over

2014-2017E.

Genting Malaysia (GENM MK, Outperform)

Most investors view GENM’s core asset, Genting Highlands, as a mature asset with stagnant

EBITDA growth for the past 5 years, but we are expecting a change and forecast it to grow at

7.3% annually for the next 3 years. The key catalyst for the stock will be its improving

visitation and revenue as the USD$1.4bn makeover, including the world’s first 20th Century

Fox theme park. Demand growth, we believe, is dependent not on Western or Chinese

tourists, but locals, and possibly tourists from Indonesia and Singapore. At core FY16E

EV/EBITDA of 7.7x, we don’t think investors have factored in the upside.

Fig 1 Asia-Pacific gaming is a US62bn market (table games and slot machine only)

Fig 2 Philippines offers the highest growth potential

Source: Company data, various sources, Macquarie Research, April 2015 Source: Various govt gaming bureaus, Macquarie Research, April 2015

43.9

5.94.5

2.7 1.5 1.4 1.3 0.3

0

5

10

15

20

25

30

35

40

45

50

GGR (US$bn) - 2014

9% 9%

0%

6%

27%

-1%

15%

-1%

-5%

0%

9%

19%

5%

17%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

2011-2014 2014-2017E

3-yr GGR CAGR

We like markets

with integrated

resorts build-out

plans along with

strong local demand

supported by

government policies


30 April 2015 3

Capturing outbound Chinese players: Echo, GKL, Naga

We are structurally negative on the shrinking Chinese VIP GGR pie, but we recognize

regional gaming destinations are picking up, attracting Chinese players who would otherwise

have gone to Macau. Of the US$10bn of GGR shrinkage likely in Macau this year (-24% YoY

on our forecast), 7% or US$750m is likely to end up in Australia, Korea and Cambodia. These

markets are expanding on a very low base and are well-positioned to tap the growing demand

from Chinese outbound gamblers. Junkets are facilitating this trend, taking their best

customers elsewhere from Macau, attracted by much higher commissions (up to 2% of

rolling) compared to Macau (capped at 1.25%). The best plays on this structural trend, in our

view, are Echo Entertainment (operator of the Star in Sydney) and GKL in Korea.

Fig 3 Total Chinese GGR down 21%, growth in non-Macau Asia only a fraction of Macau’s $10bn decline!

Fig 4 Junkets are taking their best customers elsewhere, incentivised by much higher commission

Source: Company data, Macquarie Research, April 2015 Source: Macquarie Research, April 2015

Echo Entertainment (EGP AU, Outperform)

Within the Australian casino sector, Echo remains our top pick, offering the most leverage to

an uptick in VIP gaming. In addition, Echo offers notable room for operating leverage

improvement across both The Star and the firm’s Queensland properties as management

continue to build on recent operational momentum, especially on the main gaming floor at

The Star. With net debt falling to just 1.0x EBITDA as at the last half, we view Echo as well

positioned to boost capex commitments or capital returns to investors.

Grand Korea Leisure (114090 KS, Outperform)

We like GKL for its resilient earnings growth outlook as well as upside on potentially winning

the license to build a new integrated resort in Incheon. Despite concerns over the regional

gaming industry, we forecast GKL’s earnings growth will remain solid on the back of: 1) little

dependence on junkets; 2) different feeder market (NE Asia) from other regional competitors.

The Korean government is to issue two new casino licenses for integrated resorts (IRs) near

Incheon by end-FY15, and we think GKL, as a semi-govt company, is likely to win one of the

two licenses. GKL is trading at 10x FY15E EV/EBITDA, an appealing level considering the

average 20% EBITDA growth we expect for the next two years.

NagaCorp (3918 HK, not rated)

We also find NagaCorp interesting. The company monopolizes the gaming industry in

Cambodia’s capital city and is seeing very strong uptick in VIP revenue from inbound Chinese

gamblers. Naga will be adding two more Macau junkets by offering them higher commission

than Macau’s, doubling capacity with its Naga2 project, while adding direct flights to bring

Chinese to Phnom Penh.

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

0

5

10

15

20

25

30

35

40

45

50

2011 2012 2013 2014 2015E 2016E 2017E

Macau Non-Macau YoY total Chinese

GGR from Chinese (US$bn) YoY change in Chinese GGR

1.3%

1.8%

1.5%

2.0% 2.0%

1.5%

1.0%

1.2%

1.4%

1.6%

1.8%

2.0%

2.2%

Junket commission as % of VIP rolling

junkets not

allowed

does not

disclose

Australia, Korea and

Cambodia are the

beneficiaries of

Chinese outbound

gamblers


30 April 2015 4

Remain negative on Macau and Singapore

On the other hand, Macau and Singapore will continue to see structural decline in Chinese

VIP (and premium mass) business. Both markets were heavily reliant on Chinese players and

have the most to lose.

Galaxy (27 HK, Underperform)

Galaxy is our Macquarie Marquee Sell in the Macau gaming sector. We are cautious on the

name for: 1) highest VIP exposure in the sector (>70% of GGR), while the VIP segment is in

structural decline, 2) most aggressive capex plan with at least US$10bn to be spent over the

next five years and 3) first to open in a tough market is a negative because Galaxy’s fixed

cash operating cost will jump by 40% upon opening and eat into cash flow. The stock is

expensive on 16x FY16E EV/EBITDA, considering its (modest) special dividend yield of 1.2%.

Sands China (1928 HK, Underperform)

We are structurally negative on Macau, and Sands China is no exception as the 1Q15 results

indicate: even grind mass is declining at -20% YoY, a segment that was thought to be

resilient in this downturn and was expected to eventually drive Macau’s recovery. Parisian’s

delay til the end of 2016 means market share loss to competitors’ property openings in the

coming 12 months. Sands is expensive at 17x FY16E EV/EBITDA. Consensus is grossly

overestimating dividend yield at 6-7%, in our view, which seems to be supporting valuation

even in light of weakening fundamentals. We see 2.5% dividend yield with downside as FCF

is turning negative.

Genting Singapore (GENS SP, Underperform)

We are structurally negative on the Singapore gaming market as they approached maturity

within 2 years of opening (due to tight government regulations and lack of junkets) and are in

a state of decline (due to the crackdown in China on SME bosses who make up ~50% of

Singapore VIP market, and the opening of regional casinos in Philippines and Korea) in our

view. Genting Singapore is set to suffer even more, in our view, due to the aggressive ‘direct

credit extension’ policy it adopted in the last 3 years (lent direct credit to VIP players to win

market share). A decline in market VIP volumes coupled with high bad debts (arising from

past direct credit which cannot be collected) will lead to erosion of growth and returns for

GENS, in our view. GENS is trading at 8.5x 2015E EV / EBITDA on our current estimates

with 10-15% downside risk to our numbers. It is much more expensive than steady state

mature market casinos like Echo, Skycity and Genting Malaysia who are all trading between

6-8x EV / EBITDA. We believe it is unfair to compare GENS with high-growth or “cyclical

decline” markets like Macau or the US.

We are structurally

cautious on Chinese

VIP gambling;

Macau and

Singapore will

continue to suffer

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Fig 5 Asia gaming snapshot

Macau Singapore Australia Philippines Malaysia Korea Cambodia Vietnam Vladivostok

MARKET LANDSCAPE

# of casinos 35 2 13 19 1 17 26 7 3 (Under construction)

# of integrated resorts 6 2 2 3 1 1 1 1 # of tables 5,711 1,300 1666 842 600 915 1,164 199 385 (planned)

# of slots 13,018 5,000 196,742 total, 13,008 in casinos

4,500 4,000 2,328 3,414 NA 1,800 (planned)

2014 inbound visitation (’000s)

31,526 15,100 6,581 4,833 27,437 14,198 4,002 7,874 ~250

% Chinese 67% 30% 12% 8% 6% 43% 13% 25% ~ 80%

2014 GGR breakdown

VIP 60% 49% 26% 49% 60% 81% 50% 74% Mass 40% 51% 74% 51% 40% 19% 50% 26%

VIP min chip buy-in HK$1 million (US$130,000)

S$100,000 (US$80,000)

A$75,000 (US$55,000)

Does not disclose

US$30,000 US$15,000 RMB100,000 (US$15,000)

TBD

Mass table min bet (table Baccarat)

HK$500 (US$65) S$25 (US$20) A$20 (US$15) PHP300 (US$7) RM50 (US$13) US$20 US$40 RMB10 (US$1.5) for Donaco

TBD

VIP junket commission

Capped at 1.25% rolling chips

Junkets not allowed

1.4-1.8% of rolling, or ~50% of GGR

1.5% of rolling or 20% of GGR

Higher than Macau’s

1.5-2.0% of rolling chips

70% GGR share (~2% of rolling)

1.5% of rolling TBD

Mass customer cash rebate

Up to 1% of rolling (SJM only)

No No Up to 1.25% of rolling

No No No Up to 1% of rolling

TBD

Casinos extending credit to players?

Negligible Yes, GENS in particular

Yes, though with tight limits

Yes No Yes Yes Donaco doesn't TBD

GAMING REGULATIONS

Regulation Agency Gaming Inspection and Coordination Bureau (DICJ)

Casino Regulatory Authority

State governments

Philippine Amusement And Gaming Corporation

Ministry of Finance

Ministry of Culture, Sports, Tourism

Ministry of Economy and Finance

Ministry of Finance Vladivostok Government

Concession fees and minimum investment commitment

US$ 0.5-1.1bn for each concessionaire

S$3.9bn (MBS) NA US$1bn minimum investment required

NA License base (fee negligible)

US$ 30,000

US$ 4bn investment requirement

NA

Concession period 20 years 30 years NA 25 years NA Infinite 70 years (Naga) 30 years Infinite

Concession expire 2020-2022 2036 NA 2033 Renewed every 3 months

2065 (Naga)

Gaming tax VIP 39% 5% gaming tax 10-12% 15% 25% 13.4% Fee based on # of tables, effectively ~1% of GGR

35% US$ 3,917 per table per month

Mass 39% 15% gaming tax Approx. 28% 25% 25% 13.4% 35% US$ 235 per slot per month

Corp tax 0% 17% 29% 0% 25% 24% 0% 22% 20%

Other taxes 6.54% GST 2% heritage fee 6% GST implemented in Apr 2015

25% levied on PBT at Kangwon Land only

Locals allowed? Allowed Locals are levied S$100 entry fee

Allowed Allowed Allowed except for local Muslims

Only Kangwon Land allows

Not encouraged but no strict control

Not allowed Not allowed

Potential policy changes

Restricting Chinese visitation

End of exclusivity provision in 2017 could mean a third license

No change There is always a risk of another casino license

Loosening on foreigner-only casinos

Increase in gaming tax, new licenses after 2018

Corporate tax will be lowered to 20% by 2016

Source: Various government sources, company data, Macquarie Research, April 2015

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Fig 6 Asia gaming valuation comparables

Price TP ∆ Mkt Cap PER (x) EV/EBITDA (x) EBITDA

CAGR (%) EBITDA margin ROE (%) FCF Yield (%) Div Yield (%) P/Bk

Net D/E

Ticker Company Rec lc lc % US$m CY15E CY16E CY15E CY16E FY14-16E CY15E CY15E CY16E CY15E CY16E CY15E CY16E FY14 FY14

Macau 1928 HK Sands China UP 32.00 21.00 -34% 33,313 22.1 31.1 14.6 16.2 -19.8 30.7 22.6 15.4 -1.2 1.8 3.2 2.6 5.2 10 27 HK Galaxy UP 37.65 26.40 -30% 20,670 28.4 35.3 17.3 17.2 -19.4 14.5 14.2 10.6 -5.2 -4.6 1.4 1.1 4.2 -24 1128 HK Wynn Macau UP 16.14 14.80 -8% 10,820 27.7 21.6 16.5 12.4 -6.4 24.4 38.1 38.7 -7.9 -2.5 1.4 1.9 11.9 111 880 HK SJM N 9.95 11.30 14% 7,262 12.7 15.5 6.0 6.5 -18.4 10.1 17.3 13.0 -7.7 -16.5 4.0 2.6 2.3 -92 MPEL US Melco Crown N 20.75 22.20 7% 11,281 32.6 29.2 13.3 11.4 1.0 25.3 7.9 8.4 -4.5 6.9 0.9 1.0 2.7 46 2282 HK MGM China N 14.72 17.00 15% 7,217 16.0 14.6 11.8 9.5 -6.1 24.6 46.8 39.1 -8.9 -10.9 2.2 2.4 8.8 -2

Average 20.8 21.9 14.4 14.1 -11.5 21.6 24.5 20.9 -4.4 -2.0 2.2 1.9 4.2 8

Asia regional 035250 KS Kangwon Land N 37,700 33,000 -12% 7,529 17.0 15.2 10.3 9.4 12.2 39.7 16.1 16.3 5.7 5.8 3.2 3.4 2.9 -44 034230 KS Paradise OP 25,050 29,000 16% 2,127 24.0 19.7 12.5 10.1 32.8 19.2 9.3 10.9 -2.2 -0.4 2.4 2.8 2.3 -48 114090 KS Grand Korea Leisure OP 40,000 48,000 20% 2,310 17.7 14.9 10.2 8.6 19.9 31.1 30.0 30.2 5.2 7.0 3.0 3.5 5.7 -118 GENS SP Genting Singapore UP 1.02 0.80 -22% 9,314 23.2 21.8 8.4 8.1 0.4 37.8 7.0 7.1 2.5 4.2 1.0 1.0 1.7 -18 GENM MK Genting Malaysia OP 4.38 5.29 21% 6,979 18.3 16.2 10.0 9.1 9.4 26.1 8.1 8.5 3.8 6.1 1.5 1.7 1.5 -7 RWM PM Travellers International OP 6.78 8.80 30% 2,409 16.0 15.4 7.2 6.4 12.7 49.2 16.0 14.7 15.1 16.3 1.3 1.3 2.7 -17 MCP PM Melco Crown Philippines OP 9.10 11.40 25% 1,012 32.7 18.1 7.9 5.8 NA 24.1 9.1 14.6 7.0 -4.5 0.0 0.0 3.1 45 PLC PM Premium Leisure OP 1.64 2.00 22% 1,170 26.6 15.0 14.7 9.4 101.0 96.4 12.1 20.6 4.5 6.5 3.0 5.3 3.3 -17 BLOOM PM Bloomberry OP 11.50 14.30 24% 2,862 20.0 15.5 10.2 8.6 26.5 45.5 25.7 25.3 7.8 8.8 0.0 0.0 6.0 108

Average 19.1 15.5 9.6 8.1 32.3 46.0 15.1 16.6 5.6 5.4 1.8 2.3 2.6 -13

Australia/NZ CWN AU Crown Resorts OP 13.27 17.00 28% 7,731 16.6 15.6 12.8 11.7 12.1 26.9 13.3 13.5 -1.4 -0.8 2.8 2.8 2.4 39 TTS AU Tatts Group OP 4.04 4.20 4% 4,719 20.2 18.7 11.7 11.2 8.3 18.3 9.8 10.3 5.0 5.6 4.7 5.0 2.0 23 ALL AU Aristocrat Leisure UP 8.41 7.20 -14% 4,263 20.6 17.8 9.7 8.5 72.0 33.5 33.8 35.1 1.7 3.5 3.7 4.2 7.5 -24 TAH AU Tabcorp OP 4.91 4.90 0% 3,257 20.3 17.8 9.1 8.7 6.6 24.9 13.4 15.3 6.2 6.5 7.7 5.7 2.6 65 EGP AU Echo OP 4.52 5.10 13% 2,985 17.3 17.5 8.3 8.2 9.3 22.2 7.1 6.7 2.7 1.5 2.3 2.4 1.3 22 AGI AU Ainsworth Game OP 2.75 4.10 49% 709 12.4 10.8 8.5 6.9 15.1 35.2 26.3 26.1 4.6 7.7 4.2 4.7 3.8 -30 SKC NZ SKYCITY N 4.11 3.80 -8% 1,838 17.8 15.6 9.8 8.7 14.6 32.9 16.6 17.4 -2.0 -4.0 4.9 5.1 3.1 78

Average 17.4 15.8 9.8 8.9 19.7 27.7 17.2 17.8 2.4 2.9 4.3 4.3 2.5 25

US LVS US Las Vegas Sands OP 52.90 62.00 17% 42,248 18.6 15.1 11.4 9.9 -3.9 33.6 18.9 18.9 1.6 6.4 4.9 4.9 3.9 71 WYNN US Wynn Resorts N 108.77 120.00 10% 11,043 26.8 15.5 12.9 10.2 -0.2 29.0 104.5 74.6 -9.4 -2.2 2.8 1.8 52.0 2446 MGM US MGM Resorts OP 21.11 29.00 37% 10,372 32.9 18.8 9.3 8.4 6.3 23.4 8.2 12.2 -5.8 -6.1 0.0 0.0 2.5 139 CZR US Caesars N 9.37 10.00 7% 1,356 nmf nmf 10.7 9.9 13.5 23.3 22.5 18.6 -37.1 -21.2 0.0 0.0 nmf nmf PNK US Pinnacle OP 36.69 42.00 14% 2,216 24.8 18.3 9.8 9.6 3.6 27.3 25.8 26.1 12.3 12.9 0.0 0.0 7.9 1317 BYD US Boyd N 13.14 14.00 7% 1,447 194.8 49.6 9.0 8.7 -2.1 25.8 1.7 6.7 3.2 6.4 0.0 0.0 3.3 812 PENN US Penn National N 16.11 16.00 -1% 1,284 34.1 21.2 8.2 7.3 10.0 11.1 7.5 11.1 -15.0 0.2 0.0 0.0 2.3 190 ISLE US Isle of Capri OP 14.94 15.00 0% 598 18.3 14.6 7.6 7.3 8.6 20.6 68.6 48.9 12.0 13.0 0.0 0.0 30.7 5140 MCRI US Monarch Casino OP 18.61 23.00 24% 313 17.0 17.2 6.9 6.7 9.1 25.5 10.2 9.3 -5.2 -39.0 0.0 0.0 1.8 14

Average 25.8 18.5 9.2 8.5 5.0 24.4 29.8 25.1 -4.8 -3.3 0.9 0.8 3.8 1266

OP: Outperform, N: Neutral, UP: Underperform, NR: Not rated.

Source: Bloomberg, Macquarie Research, January 2015. Price date: April 29, 2015.


30 April 2015 7

Macau has been the biggest outperformer and underperformer

Asia gaming share price performance varies across the six key markets: Macau, Philippines,

Korea, Australia, Singapore and Malaysia.

Over a five-year period, Macau gaming stocks in our coverage have been the best performers,

with a cumulative return of 383% since Jan 2010, closely followed by Philippines with 330%

return. However, the downturn since 2014 has equally been punishing for Macau investors,

down 43% since the start of 2014. On the other hand, Australian gaming stocks were the

second-worst performers, but that’s largely due to Crown’s stake in Macau operator MPEL.

Fig 7 Asia gaming share price performance since 2010

The above EV/EBITDA lines are composites of Macau: 1928.HK, 27.HK, 1128.HK, 880.HK, 2282.HK, MPEL.US; Philippine: BEL.PM, BLOOM,PM, MCP.PM, PLC.PM, RWM.PM; Korea: 034230.KS, 114090.KS; Australia: CWN.AU, EGP.AU; Singapore: GENS.SP; Malaysia: GENM.MK

Source: Bloomberg, Macquarie Research, April 2015

On forward EV/EBITDA basis, Macau remains the most expensive, trading at an average 12-

month forward EV/EBITDA of 14.5x on (Sands and Galaxy are the most expensive at 16-17x).

Macau stocks have re-rated from high-single digit EBITDA to all-time peak of 20x in early

2014 when GGR peaked.

Asia ex-Macau gaming stocks are generally cheaper on 6-12x EV/EBITDA and have stayed

consistently in that range, with the exception of GENM, which has derated from high-teens to

a high-single-digit rate over the past five years.

Fig 8 Macau remains the most expensive, Philippines and Malaysia attractive


0

200

400

600

800

1,000

1,200

2010 2011 2012 2013 2014 2015

Macau Philippine Korea Australia Singapore Malaysia

Share price performance in USD terms (Jan 2010 = 100)

0

5

10

15

20

25

2010 2011 2012 2013 2014 2015

Macau Philippine Korea Australia Singapore Malaysia

Forward EV/EBITDA(x)

Macau remains the

most expensive

regional market at

14.5x forward

EV/EBITDA


30 April 2015 8

Fig 9 Macau forward EV/EBITDA Fig 10 Philippines forward EV/EBITDA

Composite of: 1928.HK, 27.HK, 1128.HK, 880.HK, 2282.HK, MPEL.US Composite of: BEL.PM, BLOOM,PM, MCP.PM, PLC.PM, RWM.PM

Source: Bloomberg, Macquarie Research, April 2015 Source: Bloomberg, Macquarie Research, April 2015

Fig 11 Korea forward EV/EBITDA Fig 12 Australia forward EV/EBITDA


Fig 13 Singapore forward EV/EBITDA Fig 14 Malaysia forward EV/EBITDA


0

5

10

15

20

25

2008 2009 2010 2011 2012 2013 2014 2015

Forward EV/EBITDA (x)

Avg = 10.0x

0

2

4

6

8

10

12

14

16

18

20

2008 2009 2010 2011 2012 2013 2014 2015


Avg = 9.2x

0

5

10

15

20

25

30

35

2008 2009 2010 2011 2012 2013 2014 2015

Paradise GKL AVG


Avg = 8.6x

0

2

4

6

8

10

12

2011 2012 2013 2014

CWN AU EGP AU AVG


Avg = 8.0x

0

2

4

6

8

10

12

14

16

18

2011 2012 2013 2014

GENS SP AVG


Avg = 11.9x

0

2

4

6

8

10

12

2008 2009 2010 2011 2012 2013 2014 2015

GENM MK AVG


Avg = 7.2x


30 April 2015 9

Cost structure varies across Asia, yielding profitability differentials

Dealers’ wages are highest in Australia and Korea and the lowest in the Philippines, although

Macau is the notable exception with acute labour shortage due to legacy local labour law

driving structural wage inflation.

Gaming taxes are the highest in Macau (39% of GGR) where as Naga in Cambodia pays the

least, at around 1% of GGR. Macau is corporate-tax-free.

Based on Macquarie FY16 forecasts, Philippines and Singapore casinos will generate the

highest EBITDA margins at close to 40%, whereas Macau will have just 22% due to the

inferior cost structure. However, on an ROE basis, given Macau’s high dollar return on initial

investments, it will likely continue to command highest ROE across the region at 25%.

Fig 15 Dealer wages lowest in Philippines Fig 16 Macau has the highest gaming tax regionally

Source: Innovation Group, Macquarie Research, April 2015 Source: Innovation Group, Macquarie Research, April 2015

Fig 17 Philippines has the highest EBITDA margin, thanks to its low cost structure

Fig 18 Macau, Korea lead with the highest ROE

*Excluding Premium Leisure, due to the special profit arrangement with Melco Crown Philippines

Source: Macquarie Research, April 2015 Source: Macquarie Research, April 2015

0

500

1000

1500

2000

2500

3000

3500

4000

Macau Singapore Australia Philippines Malaysia Korea

Entry-level dealer wages (US$/month)

0%

5%

10%

15%

20%

25%

30%

35%

40%

VIP Mass Corporate

21%

41%

26%25%

38%

27%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Macau Philippines* Korea Australia Singapore Malaysia

FY16E EBITDA margin

21%

18%

21%

10%

7%

9%

0%

5%

10%

15%

20%

25%

Macau Philippines* Korea Australia Singapore Malaysia

FY16E ROE


30 April 2015 10

Investors will also increasingly take concession renewal overhang into valuation consideration

given that the earliest operators in Macau will renew their licences in less than five years. This

is unique to Macau operators where the rest of the region is not exposed to such imminent

uncertainty.

Fig 19 Macau is the notable exception with current concession regime coming due within the next 5 years

Macau Singapore Australia Philippines Malaysia Korea Cambodia

Regulation Agency

Gaming Inspection and Coordination Bureau (DICJ)

Casino Regulatory Authority

State governments

Philippine Amusement And Gaming Corporation

Ministry of Finance

Ministry of Culture, Sports, Tourism

Ministry of Economy and Finance

Concession period

20 years 30 years NA 25 years NA Infinite 70 years (Naga)

Concession expire

2020 (SJM, MGM) 2022 (Sands, Galaxy, Melco Crown, Wynn)

2036 NA 2033 Renewed every 3 months

NA 2065 (Naga)

Locals allowed?

Allowed Locals are levied S$100 entry fee, casino marketing to locals prohibited

Allowed Allowed Allowed except for local Muslims

Only Kangwon Land allows

Not encouraged

Potential policy changes

Restricting Chinese visitation

End of exclusivity provision in 2017 could mean a third license to be issued

No change There is always a risk that the government could introduce another casino license

Loosening on foreigner-only casinos

Increase in gaming tax after 2018, could introduce new licenses



30 April 2015 11

Race to build Integrated Resorts Macau, Singapore currently dominate Asian IR landscape

Integrated Resorts (IRs) are mega casino, entertainment, hospitality complexes offering

ample amenities and activities for leisure-seeking customers in addition to having large

enough capacity to host major conventions and conferences. The business model was first

introduced on the Vegas Strip in 1989, when Steve Wynn built the Mirage.

Although there is no official definition of IR, the idea of a combination of gaming, lodging,

entertaining and shopping functions under one roof is widely recognized. According to the

article of Andrew MacDonald and William R Eadington, “Integrated Resort developments at

the present time might cost US$4 billion or more, and include facilities and amenities that

create virtual ‘cities of entertainment’.” Considering the construction cost difference and

exchange issue, we think the investment level of IRs would be lower than US and Europe, but

the non-gaming facilities will be necessary. Thus, we classify those with US$1bn investment

or more as IRs, and those below such level as sub-IRs.

IR is getting considerable attention in Asian gaming industry, particularly over the past

decade. Asia gaming operators realized gradually that the volume of mass clients is more

critical to their business, especially when the biggest bottleneck in gaming is the lack of

rooms for players. Identifying IR development is critical in understanding the supply side of

the gaming equation, because IRs are attractive gaming properties that drive local and

foreign inbound traffic.

We summarize existing IRs across Asia in the table below. Out of the 16 across the regions,

eight are located in Macau and Singapore. A total of US$37bn has been deployed so far on

these IRs, while total room count in those properties totalling close to 38k rooms.

Fig 20 Asian Integrated Resorts currently operational

Property Company Regions

Initial opening

year

Capex (US$ mn inflation

not adjusted) Tables Slots Rooms Retail GFA

(sqm)

Resorts World Highland GENM Malaysia 1980 5,000 426 3,140 10,343 NA Naga World Naga Cambodia 1995 344 169 1,543 700 13,248 Crown Melbourne Crown Resorts Melbourne, Australia 1997 2,000 350 2,500 1,627 3,000 The Star Echo Entertainment Sydney, Australia 1997 1,500 260 1,500 732 5,500 Wynn Macau Wynn Macau 2006 1,060 500 375 1,014 2,400 Venetian Sands Macau 2007 3,850 800 3,400 2,905 93,548 MGM Macau MGM Macau 2007 722 420 1,270 582 3,800 CoD MPEL Macau 2009 2,100 450 1,514 1,400 16,000 Resorts World Manila RWM Philippines 2009 500 296 1,868 1,082 11,534 Resorts World Sentosa GENS Singapore 2010 6,590 530 1,300 1,500 30,000 Marina Bay Sands LVS Singapore 2010 5,700 611 2,455 2,561 74,322 Galaxy Phase I GEG Macau 2011 2,129 450 1,500 2,260 35,000 Sands Cotai Central Sands Macau 2012 4,400 460 2,200 5,700 28,000 Solaire Manila BLOOM Philippines 2013 1,200 361 1,623 800 60,000 Grand Ho Tram Phase I Asia Coast

Development Vietnam 2013 500 90 600 541 13,600

CoD Manila MCP/PLC Philippines 2014 832 188 1,508 950 20,000 Subtotal: Macau 14,261 3,080 10,259 13,861 178,748 Singapore 10,990 990 3,500 7,200 58,000 Malaysia 5,000 426 3,140 10,343 NA Philippines 2,532 845 4,999 2,832 91,534 Australia 3,500 610 4,000 2,359 8,500 Cambodia 344 169 1,543 700 13,248 Vietnam 500 90 600 541 13,600 Regional total 36,627 6,120 27,441 37,295 350,030

Source: Company data, various channel checks, Macquarie Research, April 2015

Think Vegas

Integrated Resorts

are complexes

where you can eat,

drink, sleep, gamble

and be entertained

all under one roof


30 April 2015 12

Macau, Korea and Philippines leading a US$50bn pipelines

Significant supply will be coming on line over the next five years across Asia. Below table

summarizes confirmed projects in each individual market. A combined US$50bn will be spent

across the region to more than double current hotel capacity from just over 30k rooms to 64k

rooms.

More than half of the US$50bn capex will be spent in Macau. Of course, projects can be

delayed and scaled back but thus far most are firmly committed even those in Macau that are

facing severe headwind with GGR falling sharply from peak in 2014.

Fig 21 Regional IR development pipeline through 2020

Project

Company

Regions

Opening year

Capex (US$ mn)

Tables

Slots

Rooms

Retail GFA (sq m)

Galaxy Phase II Galaxy Macau 2015 2,500 500 1,000 1,350 14,008 Studio City MPEL Macau 2015 2,450 800 1,500 2,000 2,681 Lot 9 Summit Ascent Vladivostok 2015 182 80 800 119 TBD The Parisian & St. Regis Sands Macau 2016 3,050 400 2,200 3,300 4,315 Wynn Palace Wynn Macau 2016 4,000 500 1,500 1,700 1,000 MGM Cotai MGM Macau 2016 2,800 500 2,500 1,600 1,610 Resorts World Manila expansion

RWM Philippines 2016 1,226

Manila Bay Resorts Tiger Resort Philippines 2016 2,000 500 3,000 2,000 TBD Highland expansion GENM Malaysia 2016 1,250 2,300 Naga2 Naga Cambodia 2016 369 300 500 1,300 18,581 Grand Ho Tram Strip Phase II

Asia Coast Development

Vietnam 2016 500 90 1,400 559 TBD

Palace Lisboa SJM Macau 2017 3,500 700 1,000 2,000 6,574 Paradise City Phase 1+2 Paradise/Sega

Sammy Korea Incheon 2017 900 160 350 814 TBD

South Hoi An Integrated Casino Resort

Vina Capital Vietnam 2017 4,000 90 600 500 TBD

Galaxy Phase III & IV Galaxy Macau 2018 9,032 TBD TBD 3,000 TBD Resort World Bayshore RWM Philippines 2018 1,100 221 1,323 1,440 1,750 Resort World Jeju GENS/Landing Korea Jeju 2018 1,000 240 500 2,800 TBD Lippo-Caesars Caesars/Lippo/OUE Korea Incheon 2018 800 130 400 560 TBD Mohegan Sun Mohegan Sun Korea Incheon 2018 1,600 250 1,500 1,000 TBD Lot 10 Summit Ascent Vladivostok 2018 500 170 500 500 TBD NagaWorld Naga Vladivostok 2018 350 100 1,000 1,000 TBD Saipan casino Imperial Pacific Saipan 2018 2,000 TBD TBD 2,004 TBD Queens Wharf Brisbane Licence Pending

(Echo or Crown) Queensland, Australia

2019 TBD TBD TBD TBD TBD

Aquis Great Barrier Reef Aquis Entertainment Queensland, Australia

2022 6,100 TBD TBD TBD TBD

Subtotal: Macau 27,332 14,950 Philippines 3,100 4,666 Korea 4,300 5,174 Malaysia 1,250 2,300 Australia 6,100 Cambodia 369 1,300 Vietnam 4,500 1,059 Vladivostok 1,032 1,619 Saipan 2,000 2,004 Regional total 49,983 33,072

Source: Company data, various channel checks, Macquarie Research, April 2015


30 April 2015 13

Supply drives visitation, and hopefully GGR

We measure supply growth by hotel room count, which is a close proxy for visitation capacity.

Growth figures are staggering across the region: total room count will more than double by

the end of the decade. Macau is firmly leading this with Cotai developments.

Fig 22 Total room count will double across Asia IRs through 2020

Source: Company data, Macquarie Research, April 2015

Fig 23 Total 30,636 rooms operated by IRs currently, 45% are located in Macau

Fig 24 By 2020, there will be 64,000 rooms operated by IRs. Macau will remain with 45% rooms share but notable growth will come from Philippines and Korea

Source: Company data, Macquarie Research, April 2015 Source: Company data, Macquarie Research, April 2015

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Currently under operation Planned additions

# of rooms operated in Integrated Resorts

Macau45%

Philippines9%

Malaysia34%

Australia8%

Cambodia2%

Vietnam2%

Macau45%

Philippines12%

Korea8%

Malaysia20%

Australia4%

Cambodia3%

Vietnam2%

Vladivostok3%

Saipan3%

~US$50bn will be

spent in Asia

through the end of

the decade to more

than double current

capacity


30 April 2015 14

Gaming industry’s two biggest growth constraints are hotel rooms and infrastructure. Macau

is a perfect illustration of these two supply side bottlenecks.

We are witnessing infrastructure improvements across Asia to expand airports and ground

infrastructure which will ultimately benefit tourism and gaming industries and increase

appeals to consumers. Completion of these projects should further catalyse visitations to IR

cluster destinations and hopefully translate proportionally into GGR.

Fig 25 Major Asia gaming markets’ capacity snapshot

Macau Korea Philippines Cambodia Vietnam Australia

Total hotel rooms

2014 27,800 88,958 2,972 7,350 40,900 229,646 2020 49,500 n/a 6,412 11,000 74,000 255,000

Casino operated rooms

2014 16,600 924 6208 ~1,000 4381 2020 37,600 3,424 9137 5431

Airport handling capacity

Pax per year

~5m c.75m (Incheon 44m, Jeju 27mn,

etc)

10m 7.5m 77.08m available seats per year

Transportation upgrade

Airport Macau Air port expansion

Incheon and Jeju expansions to

come

Terminal 1 renovation

2 airports (Phnom Penh

and Siem Reap)

3 airports (Cam Ranh, Long Thanh, Van

Don)

Road Hong Kong-Macau bridge to link Macau to

HK Int'l Airport (50m annual capacity)

Skyway-NAIA connector road

National Road 1-5 extension

Rail LRT development LRT extension Highway improvements

7 major metro/rail

systems update

Port/Dock Ferry dock upgrade Jeju port expansions

Investment (US$ mn) Airport US$ 0.63bn; LRT US$ 1.8bn

NAIA expressway -

US$400m

Airport US$ 1bn; Road

US$ 6,000mn

Airport US$ 8.2bn; Rail US$

3.2bn

Estimate finish time Airport 2016; LRT 2018

2016 Airport 2016; Road 2018

Airport 2025; Rail 2015

Traffic improving effect Airport 4mn till 2016 Improvement of access towards

Entertainment City

Airport 5mn till 2016

Airport 16mn till 2025;

Source: CEIC, Macquarie Research, April 2015


30 April 2015 15

Concerned about regional competition? Stick with Philippines and Malaysia for local demand strength

With so much capacity coming on line, a logical concern would be on competition across the

region. Of course, a bullish argument would be the low penetration of gaming across Asia still

when compared to Australia or Japan (Pachinko market).

Fig 26 Asian gaming penetration remains low compared to developed countries


We too share concerns about the total demand available to meet the significant supply

increase. We prefer markets where casinos drive most of their business from locals

(Philippines and Malaysia) for the same reason that Sheldon Adelson and Steve Wynn have

yet to enter some Asian markets: local demand is preferred to foreign only due to resilience in

the long term and because it eliminates international policy risks.

Fig 27 We prefer local-demand-driven markets

Markets Locals allowed?

Macau Allowed, the only place where gambling is legal within Greater China Singapore Locals are levied S$100 entry fee, casino marketing to locals prohibited Australia Allowed Philippines Allowed Malaysia Allowed except for local Muslims Korea Not allowed, except for Kangwon Land Cambodia Not encouraged, locals are sometimes checked Vietnam Not allowed Vladivostok Not allowed

Source: Macquarie Research, April 2015

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

GGR as % of GDP

We prefer markets

with strong local

demand and

Philippines is our

regionally preferred

market


30 April 2015 16

Fig 28 Current Asia IR landscape

Fig 29 Would look drastically different in five years’ time and could increase competition


Cash rebates to mass players: a long term competitive risk

Through our channel checks thus far, we find that only SJM provides cash rebates up to 1.0%

of rolling chip volumes to its premium mass customers to attract players from other properties.

Most operators use various types of soft comps (free rooms, airfares, F&B vouchers) to

compete for high rollers on the mass floor.

As the next phases of developments on Cotai (all are major IRs) will essentially double

capacity, we cannot rule out competition intensifying while Macau GGR continues to soften as

regional destinations ramp up their appeal to Chinese players. Macau operators will have no

choice but to accept lower EBITDA margin on the premium mass business by introducing

cash rebates to players.

Under that scenario, margin pressure could eventually spread to regional gaming markets

that rely heavily on inbound players who are looking for an alternative destination to Macau.

For this reason, we strongly prefer regional gaming markets with high exposure to local

demand.

Fig 30 Cash rebates to mass customers could destroy margins

As of Dec 2014 Macau Singapore Australia Philippines Malaysia Korea Cambodia

VIP junket commission Capped at 1.25% of rolling chips

Junkets not allowed

1.4-1.8% of rolling, or ~50% of GGR

1.5% of rolling chips or c.20% of GGR

GENM does not disclose, but higher than Macau. Players travelling from afar receive higher percentage

1.5-2.0% of rolling chips

1.7% of rolling

Mass customer cash rebate Up to 1% of rolling (SJM only)

No No No No Some receive point rebate

No

Casinos extending credit to players? Negligible, gambling debt cannot be legally enforced in China

Yes, GENS has been more aggressive than MBS

Yes, though with tight limits

Yes No Yes Yes

Source: Channel checks, Macquarie Research, April 2015

Domestic Gaming Legal

Domestic Gaming Illegal

: IRs: 5

Dwarf -IRs: 1

Tables: 2,580

Slots: 9,884

Macau

Dwarf -IRs: 3

Tables: 2,440*

Slots: 3,123

Philippines

IRs: 1

Table: 426

Slot: 3,140

Malaysia

IRs: 2

Table: 1,140

Slot: 3,750Singapore

Cambodia

Vietnam

Dwarf -IRs: 1

Table: 169

Slot: 1,543

IRs: 1

Tables: 90

Slots: 600

Domestic Gaming Legal

Domestic Gaming Illegal

: IRs: 11

Dwarf -IRs: 1

Tables: 6,480

Slots: 19,960

Macau

IRs: 3

Dwarf -IRs: 3

Tables: 4,940 *

Slots: 6,532

Philippines

IRs: 1

Table: 426

Slot: 3,140

Malaysia

IRs: 2

Table: 1,140

Slot: 3,750Singapore

Cambodia

Vietnam

Dwarf-IRs: 2

Table: 469

Slot: 2,043

IRs: 2

Dwarf -IRs: 1

Tables: 270

Slots: 2,600

Korea

: IRs: 1

Dwarf-IRs: 2

Tables: 500

Slots: 1,300

Vladivostok

Dwarf -IRs: 3

Table: 350

Slot: 2,30

Domestic Gaming Limited

Watch out for cash

rebates as

competition

intensifies in Macau


30 April 2015 17

Following in the footsteps of the Chinese Asia GGR pie at US$62bn in 2014E, to decline by 15% in 2015E

We estimate Asia’s total GGR pie at US$62bn in 2014. Macau remained the dominant

destination with 72% share followed by Singapore at a distant second with 10% share. We

forecast the overall market to shrink by 15% in 2015, driven by a 24% decline in Macau while

the rest of the region continues to grow.

Over the next three years through FY17E, we see the highest growth potential in the

Philippines and Korea at 19% and17% GGR CAGR through 2017, respectively. Both

countries have large integrated resort expansion pipelines although the Philippines potential

will be largely driven by strength of its domestic mass market whereas in Korea, reliance on

inbound traffic particularly from China will continue to drive the foreign-only market.

Fig 31 Asia GGR pie to shrink by 15% in 2015 due to a 24% pullback in Macau

Fig 32 Philippines and Korea offer biggest growth potential while Macau continues to be the drag


With Macau’s VIP segment in structural decline, we expect mass market gaming’s

contribution to Asia’s total GGR to rise further from 32% in 2011 and 41% in 2014 to 56% by

2017E.

Fig 33 Mass market to drive growth going forward Fig 34 Macau in decline but should still dominate


0

10

20

30

40

50

60

70

2011 2012 2013 2014 2015E 2016E 2017E

Macau Philippines Korea Singapore Malaysia Cambodia Australia

GGR (US$bn)

9% 9%

0%

6%

27%

-1%

15%

-1%

-5%

0%

9%

19%

5%

17%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

2011-2014 2014-2017E

3-yr GGR CAGR

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

2011 2012 2013 2014 2015E 2016E 2017E

VIP Mass Total GGR YoY

US$ mn

69.9% 71.2% 73.1% 71.7%63.4% 63.3% 63.0%

2.8% 3.1% 3.5% 4.6%

6.4% 7.4% 7.6%2.0% 2.2% 2.2% 2.3%

3.1% 3.3% 3.9%

12.5% 10.6% 9.6% 9.7%11.4% 10.7% 10.2%

8.0% 7.9% 7.1% 7.4% 10.2% 9.7% 9.5%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2011 2012 2013 2014 2015E 2016E 2017E

Macau Philippines Korea Singapore

Malaysia Cambodia Australia


30 April 2015 18

Are Chinese gamblers avoiding Macau and going elsewhere?

While the negative atmosphere in Macau (anti-corruption, surveillance, diversification,

UnionPay, smoking ban, to name a few) is likely driving Chinese players elsewhere, it is far

from enough to explain our expected 24% YoY decline in Macau GGR in 2015. Australian

gaming operators were reporting VIP volume growth of 70-90% YoY in recent quarters while

Naga saw VIP GGR doubling in 1Q15.

Our regional gaming team surveyed operators across the Asia-Pacific region. Based on

guidance and observations on percentage of GGR contribution from Chinese players, we

construct an estimate of the total Chinese GGR pie.

Fig 35 Chinese will continue to dominate Asia GGR

Fig 36 GGR exposure to Chinese varies across the regions


Only 7% of Macau’s GGR decline has gone to other regions

Evidently, the growth of Chinese GGR in other regions, namely Australia (+50% in FY15),

Cambodia (+61%) and Korea (+18%), totalling up to ~US$750m in dollars this year, is just a

fraction of Macau’s expected drop in GGR of US$10bn this year.

Chinese GGR decline is structural in nature in our view, driven by a shift in China’s economic

model, that was once FAI-driven and easy credit fuelled and is no longer sustainable, hence

the high roller gamblers can no longer afford to bet big on Baccarat tables in VIP rooms and

on Premium mass floors in Macau. For more, please read our note Tuhao-nomics.

Fig 37 Total Chinese GGR down 21%; growth in non-Macau Asia only a fraction of Macau’s $10bn decline!

Fig 38 Australia is seeing the biggest uptick from outbound Chinese gamblers


3539

47 46

36 38 41

13

14

15 16

1618

19

0

10

20

30

40

50

60

70

2011 2012 2013 2014 2015E 2016E 2017E

Total Chinese Non-Chinese

GGR (US$bn)

75%

94%

27%

56%

32%

5%

12%19%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Estimated % GGR from Chinese, FY14

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

0

5

10

15

20

25

30

35

40

45

50

2011 2012 2013 2014 2015E 2016E 2017E

Macau Non-Macau YoY total Chinese

GGR from Chinese (US$bn) YoY change in Chinese GGR

0

1

2

3

4

5

6

7

2012 2013 2014 2015E 2016E 2017E

Philippines Korea Singapore Malaysia Cambodia Australia

Outbound Chinese GGR (Asia-ex Macau) in US$bn

http://r.macq.co/_OTg2MzU1


30 April 2015 19

Outbound gaming is structural: Korea, Australia and Cambodia

Although the total Chinese GGR pie may be in structural decline and greatly hurting markets

such as Macau and Singapore, there are other markets benefiting from the diversion of

Chinese gamblers. That only 7% of Macau’s GGR decline has gone to regional markets

means there could be significant upside going forward.

Key beneficiaries of outbound Chinese gaming are Korea, Australia and Cambodia. The table

below summarizes the expected dollar amount of Chinese GGR. These markets are coming

off very low bases (compared with Macau’s) and the growth potential appears encouraging.

Fig 39 Australia, Korea and Cambodia seeing the most uptick from Chinese gambling moving to other regions

GGR in US$m 2011 2012 2013 2014 2015E 2016E 2017E

Total Chinese GGR 34,937 39,423 46,721 45,824 36,295 38,495 40,606

Macau 31,634 35,818 42,573 41,297 30,997 32,757 34,244 Philippines 264 360 510 731 818 950 1,183 Korea 348 552 693 800 940 1,093 1,323 Singapore 1,979 1,824 1,956 1,907 1,917 1,926 1,936 Malaysia 77 78 81 75 73 80 86 Cambodia 64 76 102 162 261 343 444 Australia 571 715 806 851 1,289 1,346 1,390 Change in GGR

Macau 4,184 6,755 -1,276 -10,300 1,760 1,487 Philippines 96 150 221 87 132 233 Korea 204 142 107 141 153 230 Singapore -155 132 -49 10 10 10 Malaysia 1 3 -6 -2 7 6 Cambodia 12 26 61 99 82 101 Australia 144 92 45 438 57 45 Net change 4,486 7,298 -897 -9,529 2,200 2,111


There are several reasons Chinese gamblers are increasingly heading to other regions.

Negative atmosphere in Macau and Hong Kong discouraging Mainland visitors

Visa policies easing in other countries

Currency depreciation effect (Australia, Japan, Europe)

Increasing access to direct flights and cultural influence (Korea)

Lower minimum bets and qualification for VIPs

Junket incentives: lower gaming tax and higher commissions than Macau

Fig 40 HK/Macau remain the key ‘outbound’ tourist destinations

Fig 41 But growth going forward will likely be to other destinations nearby, such as Korea

Source: CNTA, Macquarie Research, April 2015 Source: KTO, Macquarie Research, April 2015

0

5

10

15

20

25

30

35

40

45

Million person (2014)

-20

0

20

40

60

0

5

10

15

20

25

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15E 16E 17E

% YoYVisitor (mn) Others

Japanese

Chinese

Chinese growth (RHS)

Chinese are

travelling abroad

more than ever

before, gaming is

one of the key

activities


30 April 2015 20

Hong Kong unwelcoming to Mainland Chinese, Macau overly congested and has policy restrictions

A series of political events, from Occupy Central (4Q14) to more recent hostility against

Mainland tourists as a result of anger towards parallel traders has dampened Chinese tourism

to Hong Kong. According to local media, Hong Kong’s mainland Chinese visitations have

been declining at double-digit rates YoY since March 2015.

Meanwhile the negative atmosphere in Macau, be it a crackdown on corruption, surveillance

of fund flows, UnionPay restrictions, or a smoking ban, has been made worse by border and

infrastructure congestion. Macau simply cannot handle any more tourists before the

completion of the Macau-Zhuhai-Hong Kong Bridge and the Hengqin High Speed Rail in 2018;

hence the government is proposing an annual cap on mainland visitation at 21m.

Our concern is that anti-mainland sentiment in Hong Kong will drag Macau visitation down in

the long run since Hong Kong and Macau are under a single Individual Visit Scheme (IVS)

and non-Guangdong Mainlanders who need to fly into HK or Macau view the two special

administrative regions as a packaged destination (i.e. leisure travellers come to visit both

cities in a single trip).

Meanwhile, visa restrictions have been relaxed almost everywhere else in Asia and they are welcoming the Chinese with open arms

Chinese passports have become more valuable in recent years with many foreign countries

relaxing visa restrictions in order to bring in lucrative Chinese tourism dollars.

Fig 42 Nations providing favourable visa policies to China tourists

Policy Nations (Regions)

Mutual visa free San Marino, Seychelles, Mauritius, Bahamas Unilateral visa free to Chinese Samoa, Haiti, Jamaica, Dominica, Antigua and Barbuda, Jeju Island Korea,

Saipan, the British Turks and Caicos Islands, British South Georgia and the South Sandwich Islands

Landing visa available to Chinese

Maldives, Indonesia, Brunei, Fiji, Comoros, Palau, Burma, East Timor, Bahrain, Jordan, United Arab Emirates, Laos, Lebanon, Nepal, Sri Lanka, Thailand, Turkmenistan, Iran, Vietnam, Egypt, Togo, Verde angle, Guinea-Bissau, Ivory Coast, Madagascar, Malawi, Sierra Leone, Tanzania, Uganda, Guyana, British St. Helena, Tuvalu, Vanuatu, Cambodia, Kenya, Bangladesh, Mauritania

Source: CNTA, Macquarie Research, April 2015

Fig 43 Visa policies of major Asian destinations

Nations (Regions)

Favourable policies Negative factors

HK Individual Visit Scheme (IVS) Anti-China sentiment Macau Individual Visit Scheme (IVS) Infrastructure bottlenecks, lack of

rooms, policy negatives Singapore 96-hr landing visa

3-5 days to approve the applications from Beijing, Shanghai, Chengdu, Guangzhou and Xiamen 5-7 days to approve the applications from rest of China

Malaysia No visa application fee Airline incidents 7 days landing visa 120-hr transit visa

Philippines Allowed no-visa entry for 7 days, if the visitors have US, Japan, Canada or EU visas

Maritime disputes with China

Vietnam Landing visa Maritime disputes with China More complicated than other nations

Cambodia Free landing visa

Australia WH visa Investment visa

Korea Allowed no-visa entry Eased qualifications and extended the validity of multiple-entry visa

Further Eased qualifications of multiple-entry visa

Source: Various government tourism boards, Macquarie Research, April 2015

Hong Kong, Macau

historically

accounted for

majority of Chinese

outbound tourism

Visa policies

towards Mainland

Chinese are being

relaxed in many

popular tourist

destinations


30 April 2015 21

Fig 44 While Macau visitation will become ever more restrictive

Date Details

July 2003 to now Opening IVS visa to mainland China tourists Before Apr 2007 Transit visa application frequency is twice per month and staying for 30 days May 2007 to Jul 2008 Transit visa application frequency is once per month and staying for 14 days Mar 2010 to now Transit visa application frequency is once every two months and staying for 7 days July 2014 to now Transit visa staying permit for 5 days April 2015 Proposed a 21m Mainland Chinese visitation cap



30 April 2015 22

Macau junkets are taking best customers elsewhere

Through our various channel checks across the region, we find that junkets and players are

being lured to non-Macau casinos through monetary incentives.

Minimum bets in Macau are notoriously known as the world’s highest by a large margin. By

contrast, Asian regional markets’ table games are much more affordable. The bar to qualify

as a VIP player in other regions is also much lower than Macau’s.

Fig 45 Current minimum bet is much lower in other markets compared with Macau, attracting mass players

Fig 46 And it’s much easier to qualify as VIP elsewhere


More importantly though in our view, junket-driven VIP is of much greater importance when it

comes to Chinese outbound GGR contribution. Junkets are incentivised in a big way when

they get up to 2% commission on rolling chips versus the 1.25% in Macau. Macau’s high

gaming taxes are preventing operators from paying any higher to junkets (VIP EBITDA

margin is only 10% for the casino operators) but the other regions with much lower gaming

taxes can afford to pay up.

Of course, long travel distances, and difficulties in fund transfer are also discouraging junkets

from going farther away from Macau but many regional operators have their own private jets

to shuttle junkets’ high-end VIP players directly from lower-tier cities in China.

Fig 47 Gaming taxes are much lower vs. Macau Fig 48 Junkets’ commission rates are much higher

Source: Various gaming regulators, company data, Macquarie Research, April 2015


0

10

20

30

40

50

60

70

Minimum bet (US$, table Baccarat)

0%

5%

10%

15%

20%

25%

30%

35%

40%

VIP Mass Corporate

1.3%

1.8%

1.5%

2.0% 2.0%

1.5%

1.0%

1.2%

1.4%

1.6%

1.8%

2.0%

2.2%

Junket commission as % of VIP rolling

junkets not

allowed

does not

disclose

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

Min chip buy - in to qualify as VIP (US$)

Junkets are lured by

higher commissions

in jurisdictions

other than Macau


30 April 2015 23

Regional markets in detail In the remaining part of the report we present regional market overviews from our local analysts.

Markets are sequenced in descending order of 2014 GGR in US dollar terms.

Note that although Japan is excluded from the chart below due to the lack of ‘proper casino’

operations, its Pachinko market is sizable at US$23.6bn in 2014 (vs. Macau’s GGR at $43bn).

The potential for a legalization and adoption of the integrated resort model in Japan could be

disruptive to the regional competitive landscape.

Fig 49 Asia gaming market size by 2014 GGR


Fig 50 Dealer wages lowest in Philippines Fig 51 Tax rate lowest in Cambodia

Source: Innovation Group, Macquarie Research, April 2015 Source: Innovation Group, Macquarie Research, April 2015

43.9

23.6

5.9 4.52.7 1.5 1.4 1.3 0.3

0

5

10

15

20

25

30

35

40

45

50

Macau Japan (pachinko)

Singapore Australia Philippines Malaysia Korea Cambodia Vietnam

GGR (US$bn)

0

500

1000

1500

2000

2500

3000

3500

4000

Macau Singapore Australia Philippines Malaysia Korea

Entry-level dealer wages (US$/month)

0%

5%

10%

15%

20%

25%

30%

35%

40%

VIP Mass Corporate

Japan gaming

would be a US$24bn

market if Pachinko

is included


30 April 2015 24

Macau We have a cautious view on the Macau gaming sector, as the double whammy impact from weak

GGR and sharp increase in costs and capex from new capacity addition will bite into earnings and

FCF, making current dividend yields unsustainable. The whole sector is still expensive, with

16/14x FY 15/16E EV/EBITDA compared to the avg 9/8x global peers’ level.

The tightening of shadow bank lending in China largely constrained the liquidity situation in the

real economy and specifically those of the SMEs, whose bosses are the ultimate source of VIP

and premium mass players. Meanwhile, the key question investors and operators appear to be

asking is whether the capacity addition over the next 3 years will sequentially grow the demand

pie or operators will need to compete more fiercely for market share. Recent trends of still robust

visitation versus a falling GGR even on the mass side is concerning; we worry that as new casinos

open, operators will need to fill new capacity with less premium customers.

We have a Neutral rating for SJM (880 HK, TP HK$ 11.3), Melco Crown (MPEL US, TP

US$ 22.20) and MGM China (2282 HK, TP HK$ 17.0). We maintain Underperform ratings on

Sands China (1928 HK, TP HK$ 21.0), Galaxy (27 HK, TP HK$ 26.4) and Wynn Macau (1128 HK,

TP HK$ 14.8). Galaxy is on our Macquarie Marquee Sell List.

Valuation

Macau is currently trading on 14x FY15E EV/EBITDA and 15x FY16E EV/EBITDA, still above

the fair-cycle average of 12x and at a significant premium to the rest of the world at 8.0-8.4x

FY16E EV/EBITDA. We believe the market will become more cautious over Macau’s

valuation premium given structural headwinds and lack of visibility in GGR trends. Those with

an overly stretched balance sheet, long-dated capex plans, and hence cash flow/dividend

risks, will likely trade at a discount to their peers.

Our primary valuation methodology on the gaming sector is EV/EBITDA which we believe

appropriately captures cash earnings generation while neutralizing the impact of outsized

depreciation and capital structure differentials that would otherwise get reflected in a PER

methodology. We think the four-year average forward EV/EBITDA of 12.0x between May

2009 and June 2013 is a fair representation of a full-cycle valuation benchmark for the Macau

gaming sector.

Even looking at the consensus valuation below, Macau remains expensive, trading at 12x

forward EBITDA at the moment vs. a trough of 6.6x in 2009 and 8.7x in 2012. Earnings

downward revision and GGR decline have both been more punishing than the last two bear

cycles with the exception that consensus dividend yield is at all time high. That dividend yield

is now more than 100% of consensus FCF, which appears unsustainable as we head into

peak capex years when we expect FCF to turn negative.

Fig 52 Macau gaming comps table

Price TP ∆ Mkt Cap PER (x) EV/EBITDA (x) EBITDA

CAGR (%) EBITDA margin FCF Yield (%) Div Yield (%)

Net D/E

Ticker Company Rec lc lc % US$m CY15E CY16E CY15E CY16E FY14-16E CY15E CY15E CY16E CY15E CY16E FY14

1928 HK Sands China UP 32.00 21.00 -34% 33,313 22.1 31.1 14.6 16.2 -19.8 30.7 -1.2 1.8 3.2 2.6 10 27 HK Galaxy UP 37.65 26.40 -30% 20,670 28.4 35.3 17.3 17.2 -19.4 14.5 -5.2 -4.6 1.4 1.1 -24 1128 HK Wynn Macau UP 16.14 14.80 -8% 10,820 27.7 21.6 16.5 12.4 -6.4 24.4 -7.9 -2.5 1.4 1.9 111 880 HK SJM N 9.95 11.30 14% 7,262 12.7 15.5 6.0 6.5 -18.4 10.1 -7.7 -16.5 4.0 2.6 -92 MPEL US Melco Crown N 20.75 22.20 7% 11,281 32.6 29.2 13.3 11.4 1.0 25.3 -4.5 6.9 0.9 1.0 46 2282 HK MGM China N 14.72 17.00 15% 7,217 16.0 14.6 11.8 9.5 -6.1 24.6 -8.9 -10.9 2.2 2.4 -2 Average 20.8 21.9 14.4 14.1 -11.5 21.6 -4.4 -2.0 2.2 1.9 8

Source: Bloomberg, Macquarie Research, April 2015. Price date: April 29, 2015.

Jamie Zhou, CFA [email protected]

+852 3922 1147

Recent publications Dec 2014: Sector initiation

Jan 2015: Warning! Margin and yield may be lower than they

appear Mar 2015: You build it, Tuhaos

may not come Apr 2015: Tuhao-nomics under

a new normal

Macau is not cheap

at 14x EBITDA even

compared with its

own long term

average of 12x

mailto:[email protected]

http://r.macq.co/_OTU0NzU0

http://r.macq.co/_OTY3MDc1



http://r.macq.co/_OTc4ODUx

http://r.macq.co/_OTc4ODUx




30 April 2015 25

Fig 53 Macau remains expensive on 14x consensus EBITDA vs. 2012 bear cycle of 10.6x

Source: Bloomberg, DICJ, Macquarie Research, April 2015

6.6

15.3

8.7

18.6

10.9

5

10

15

20

2009 2010 2011 2012 2013 2014 2015

+1 σ

Mean

-1 σ

Forward Consensus EV/EBITDA (x) Valuation

Average: 12.4x Average: 10.7x Average: 13.9x

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

2009 2010 2011 2012 2013 2014 2015

2009 2010 2011 2012 2013 2014 2015 2016

Sector consensus EBITDA (US$m) Earnings revision

Upward earnings revision Downward revision

Upward earnings revision

Downward revision

-5.0%

-3.0%

-1.0%

1.0%

3.0%

5.0%

7.0%

9.0%

2009 2010 2011 2012 2013 2014 2015

FCF yield Div yield

% of combined market cap

falling FCF but rising

div yield

rising yields falling yields

peaking yields

Yield


30 April 2015 26

GGR Forecast: VIP structural decline, Mass to grow slower than capacity addition

We forecast continued softness in the market until late 2015; our GGR forecasts for

FY15/16/17E are -24% /+7%/+5%. We assume general liquidity conditions in China’s real

economy won’t meaningfully recover until further monetary easing through rate or RRR cuts

in 2015, while the government continues to tighten its grip on shadow bank financing to

reduce systemic risks to the banking system. SMEs as a result will only see very slow

recovery. We see VIP GGR continuing to decline by a mid-teens rate in 2015, as the still-tight

liquidity affects the super high rollers.

Fig 54 Base case GGR forecasts Fig 55 A modest recovery in Mass starting 3Q15

Source: DICJ, Macquarie Research, April 2015 Source: DICJ, Macquarie Research, April 2015

Fig 56 Base case GGR forecasts

US$m 2013 2014 2015E 2016E 2017E

Total GGR 45,087 43,934 33,182 35,498 37,325 YoY 19% -3% -24% 7% 5% VIP 29,739 26,209 17,339 15,625 13,637 YoY 13% -12% -34% -10% -13% Mass 13,510 15,882 14,377 18,034 21,691 YoY 35% 18% -9% 25% 20% Slots 1,838 1,840 1,466 1,840 1,997 YoY 9% 0% -20% 25% 9% GGR per day 124 120 91 97 102 VIP 81 72 48 43 37 Mass 42 49 43 54 65

Source: DICJ, Macquarie Research, April 2015

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

VIP GGR Mass GGR Slot GGR

USD mn

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

VIP YoY Mass YoY


30 April 2015 27

Significant supply additions coming through by end-2017

Macau Mass GGR should benefit from the opening of new properties that we expect to add

18%, 34% and 22% rooms to the casino industry in FY15, 16 and 17; but we remain cautious

on high-roller Tuhaos as the premium mass may be experiencing a similar structural decline

trend as VIP players. Hence, our sequential recovery forecast in mass GGR run-rate is 14%,

25% and 18% for the three years, lower than room capacity addition.

Fig 57 93% room capacity addition by the end of 2017

Date Company Property Room

addition Total casino

operated rooms Capacity growth

Dec 2014 16,631 2Q2015 Galaxy Galaxy Phase II 1,350 17,981 8% 3Q2015 MPEL Studio City 1,600 19,581 9% Dec 2015 19,581 18% 2Q2016 Wynn Wynn Palace 1,700 24,681 7% 3Q2016 MGM MGM Cotai 1,600 26,281 6% 4Q2016 Sands Parisian & St. Regis 3,400 22,981 17% Dec 2016 26,281 34% 2Q2017 MPEL CoD Tower 5 800 27,081 3% 2017 SJM Palace Lisboa 2,000 29,081 7% 2017 Galaxy Galaxy Phase III & IV 3,000 32,081 10% Dec 2017 32,081 22%


With sharply falling GGR daily run-rate and now stalling visitation stats, we are concerned this

trend will continue into new capacity openings. Visitation, particularly from Mainland China,

has also pulled back from the 2H14 peak. January overall visitation was -2% YoY while China

visitation -1%, a trend that continued into Chinese New Year week in February. This might

have been attributable to ongoing visa restrictions, border congestion and weakening of

regional currencies prompting leisure Chinese travellers to head elsewhere.

Fig 58 Drop in GGR is now followed by stalling visitation since Dec 2014 Fig 59 Daily GGR showing sharp downward trend

Source: DSEC, DICJ, Macquarie Research, April 2015 Source:LY.com, Macquarie Research, April 2015

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

Jan-10 Sep-10 May-11 Jan-12 Sep-12 May-13 Jan-14 Sep-14

Total Visitation GGR

YoY growth

-

200

400

600

800

1,000

1,200

1,400

1,600

Ja

n-0

8

Ma

y-0

8

Se

p-0

8

Ja

n-0

9

Ma

y-0

9

Se

p-0

9

Ja

n-1

0

Ma

y-1

0

Se

p-1

0

Ja

n-1

1

Ma

y-1

1

Se

p-1

1

Ja

n-1

2

Ma

y-1

2

Se

p-1

2

Ja

n-1

3

Ma

y-1

3

Se

p-1

3

Ja

n-1

4

Ma

y-1

4

Se

p-1

4

Ja

n-1

5

Daily GGR run-rate (MOPm/day)


30 April 2015 28

Macau’s neighbouring Guangdong province remains the main source of visitation. Since the

Macau Government Tourism Office began disclosing the breakdown of Mainland visitation by

provinces of origin in July 2011, Guangdong as a % of the total has reduced from >50% to

close to ~40% as of 2014. More tourists from the rest of China are increasingly visiting Macau.

We believe that as the planned infrastructure improvements are completed from 2016 to 2018,

more non-Guangdong tourists will be attracted to visit Macau, due to the shorter travelling

time and more convenient boarding process

Infrastructure constraints and catalysts:

Hengqin Lotus border began 24-hour operation starting Dec 18, 2014

To be completed in 2017-2018, Macau-Hong Kong Bridge to link Macau to Hong Kong

International Airport with a 60m annual passenger handling capacity, enabling easier

access to major cities in China and globally

Inter city traffic congestion relief: Macau light rail to be completed by 2018

Permanent Pac On Ferry Terminal: expected completion remains unknown

Macau Airport: expansion to enlarge capacity by 80%

CRH Hengqin extension to link Lotus gate to Guangzhou-Zhuhai intercity rail and

Zhuhai airport (12m passenger annual capacity) to be completed by 2018

Further regulation tightening and uncertainty of concession renewal

During 2H2014, the Macau government took a series of actions targeted at the gaming

industry. The Ministry of Public Security (MoPS) held a senior-level conference in Haikou with

18 provincial police departments to investigate the cross-border gambling situation nationwide

across China. Macau and South Korea were put under the spotlight.

Shortly thereafter, the Hong Kong Police Department (HKPD), together with the FBI, issued

an investigation order on Cheung Chi-Tai, who has been one of the biggest shareholders in

one of the most important junket operators in Macau, and his assets were frozen.

On 16th Dec 2014, just days before Chinese President Xi’s visit, the AMCM and MoPS met

with most of the local bankers privately to pass on a message about setting up a strict and

live monitoring system on illicit money flow, and provide a list of names and information on

high-risk businesses that use the China UnionPay bank card system.

Fig 60 Major government action on regulating Macau gaming sector

Date Government bodies Details

3-Dec-14 MoPS, Provincial PD The MoPS held a conference with 18 provincial police departments to investigate crimes related to Cross-border gambling, mainly focusing on Macau and South Korea.

11-Dec-14 HKPD, FBI Cheung Chi Tai, one of the biggest shareholders in one of Macau’s largest junket operators, Neptune Guangdong Group, and seven of his closely held companies were subject to an order to have their assets frozen.

16-Dec-14 AMCM, MoPS Require the local bankers to set up a live monitoring system; Require the local bankers to provide a list of names and information on high-risk businesses that use the China UnionPay bank card system.

Source: Various news sites, Macquarie Research, April 2015

Shortly after Xi’s visit, the chief governor Fernando Chui noted that the Macau government

will make a comprehensive review on the gaming industry and then provide development

guidance for the gaming industry. Although the government did not clarify how the review

would be implemented and which aspects would be involved, we are concerned the

concession policy may be revised significantly. As the original concessions will expire in 2020

and 2022 for all 6 operators, uncertainty over shortening of the next concession period,

increasing concession fees or adding more concessions to diversify the market are gradually

increasing.


30 April 2015 29

Consensus remains overly optimistic on FCF and dividend

Our key differentiation from consensus lies in the way we model cash operating costs. We

divide each operator’s costs into four components: gaming tax, junket commission, labour

cost and other cash costs. Labour cost, while only accounting for mid-to-high single-digit

percent of GGR, represents ~50% of Macau operators’ total cash operating costs and is

seeing double-digit inflation due to structural shortage of local workers.

We forecast industry total cash operating costs to rise 48% from FY15 to FY17 amid new

property openings, during which time total GGR is likely to experience significant decline (-24%

FY15). Our sector EBITDA forecasts are 21-28% lower than consensus forecasts.

Given that all six operators continue to deploy capex (total US$14bn through FY17 and more

thereafter), FCF will likely come under pressure. We project industry FCF to turn negative this

year with modest recovery in FY16. As a result, we don’t believe the consensus sector

dividend yield of 5-6% is achievable.

Fig 61 Our Macau total EBITDA forecasts are 21-28% lower than consensus

Fig 62 We see negative FCF in FY15 and FY16 FCF, while consensus seems more optimistic


Fig 63 Our EBITDA forecasts are 21-28% below Consensus’ for FY15-16E

Macquarie Consensus MQ vs. consensus EBITDA Currency FY15 FY16 FY15 FY16 FY15 FY16

Sands US$ mn 2,325 2,098 3,040 3,346 -24% -37% Galaxy HK$ mn 8,530 8,592 11,872 12,942 -28% -34% Wynn HK$ mn 4,000 4,789 6,685 8,156 -40% -41% MPEL US$ mn 1,027 1,193 1,082 1,407 -5% -15% SJM HK$ mn 5,610 5,171 6,216 5,932 -10% -13% MGM HK$ mn 4,728 5,873 5,203 5,725 -9% 3%

Macau total US$ mn 6,303 6,443 7,990 8,979 -21% -28%


6,303 6,443

7,990

8,979

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

FY15E FY16E FY15E FY16E

Macquarie Consensus

Forecast industry EBITDA (USD mn)

-3,911

-1,064

701

3,808

-5,000

-4,000

-3,000

-2,000

-1,000

0

1,000

2,000

3,000

4,000

5,000

FY15E FY16E FY15E FY16E

Macquarie Consensus

Forecast industry FCF (USD mn)

Consensus forecast

of 5-6% dividend

yield is

unrealistically high

in our view


30 April 2015 30

Fig 64 Industry cash operating costs to rise 48% from FY15E to 17E with major openings by all six operators and double-digit wage inflation

Fig 65 EBITDA margins are likely to decline through FY16E and FY17E


We believe consensus still hasn’t fully grasped the potential dividend risks, the negative

operating leverage from weak GGR, and cost inflation while major capacity additions are on

their way. In our new forecasts, we expect MGM, Wynn and SJM to slash dividend payouts

aggressively through FY16 from close to 100% to around 30% to 40% while preserving cash

generation for capex deployment on Cotai.

Fig 66 MGM and SJM’s dividends are most at risk

Sands Galaxy Wynn SJM MPEL MGM

FY13 payout ratio Regular dividend 81% nil 100% 50% nil 35% Special dividend 36% nil nil 22% 30% 73% FY14 payout ratio Regular dividend 40% nil 57% 71% 30% 35% Special dividend Nil >40% 85% nil nil 54% Current payout policy In the absence of

big projects beyond Parisian, Sands China will pay its entire FCF (less interest costs) in

dividends

Special dividend only, will not initiate

a regular payout policy given capex

commitments ahead and

potential interest rate hikes

Might not be able to sustain 50% payout if capex

overrun on Palace Lisboa

30% dividend payout quarterly

Hope to maintain 35% payout, paid

semi-annually. Will consider special

dividend depending on cash flow

situation

Payout Regular Special, may not sustain

Regular til mid 2014

Regular but may not sustain

Regular Regular + potential special

Dividend cut risk Medium Medium High High Low High


0

2,000

4,000

6,000

8,000

10,000

12,000

2009 2010 2011 2012 2013 2014 2015E 2016E 2017E

Staff costs Others

USD mn

48% jump in cash cost

10%

15%

20%

25%

30%

2012 2013 2014 2015E 2016E 2017E

Base Bull Bear

Industry total EBITDA margin (US GAAP)


30 April 2015 31

Singapore We hold a cautious view on Singapore gaming sector, given declining GGR from the VIP sector

and weakening growth trend in the Mass market.

The anti-corruption and liquidity tightening in China definitely affects Singapore’s VIP gaming

business, in our view. One of the two casino operators, Genting Singapore (GENS), has tried to

offset this negative effect by implementing “direct credit extension”. However, we believe this is

just a one-off method which cannot be used for long or risks weakening GENS’ balance position.

Meanwhile, we believe that double digit volume growth in Singapore’s mass market would be

difficult to achieve due to government regulations and dependence on Malaysian and

Indonesian tourists. As Chinese, Malaysian and Indonesian make up around 40%

Singapore’s total tourists, the significant decline in tourists from these three countries due to

a series of incidents – including the Malaysia airline accidents, and SGD strength against

MYR and IDR – has largely dragged the Mass market performance.

We maintain our Underperform rating on Gents Singapore (GENS SP, TP SG$ 0.8).

Valuation

GENS is currently trading at 23x 2015E P/E and almost 2x P/B. With very minimal 4% CAGR

earnings growth that we project over the next 3 years and 7-8% ROE, these valuations are

clearly too expensive to us currently.

GGR Forecast: Credit extension will not save VIP while Mass will dragged by weak tourism

Singapore’s VIP gaming volumes declined by 15% YoY in 2014, according to our analysis.

But, GENS’ VIP volumes declined by only 3% YoY as its VIP volumes remained quite high in

the 1st half of 2014 before starting to decline from July ’14.

Thus, GENS increased its market share to 58% in 2014 from 51% in 2013, according to our

analysis. We believe most of this market share growth was driven by high “direct credit” to

VIP players in 2014 while Marina Bay Sands (MBS) adopted a more conservative approach

and sacrificed “market share” to maintain profitability.

Fig 67 Base case rolling volume forecasts Fig 68 A modest recovery in Mass starting 3Q15


50 48

62

61

0

20

40

60

80

100

120

140

2011 2012 2013 2014

MBS GENS

99 104

123

101

US$bn

50% 52% 49%42%

50% 48% 51%58%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2011 2012 2013 2014

MBS GENS

Somesh Agarwal [email protected]

+65 6601 0840

Recent publications

Mar 2015: More bad chips in store Sept 2014: Hope can hurt


http://r.macq.co/_OTgzNDYx

http://r.macq.co/_OTMxMzIy


30 April 2015 32

Fig 69 GENS has a very high base of 1H14 volumes to compare with in 1H15

Fig 70 MBS also saw continuous decline in VIP volume since 2013


In the 4Q14 conference call, GENS’ management indicated that they would like to slow down

the pace of “direct credit” to VIP players. Based on this new strategy, we think GENS’ VIP

volumes will scale back to 2011-12 levels of around US$50bn in 2015E from US$60bn levels

in the last 2 years. This implies that GENS’ VIP volumes will decline by 14% in 2015E. We

believe this decline will largely disappoint the market, as consensus is still building in 15%

growth. The other issue for GENS is that in the 1st half of 2015, it will be working off a very

high base of VIP volumes of 1H14.

Singapore’ mass market volumes grew by 6% YoY in 2014, and the growth was shared by

MBS and GENS, according to our analysis. MBS continues to lead the mass market with 57%

market share, which we believe is due to its location advantage.

We expect 5% growth in Singapore’s mass market volumes in 2015 while the consensus is

building in 10-15%, in our view. We believe double digit growth in Singapore’s mass market

would be difficult to achieve due to government regulations and dependence on Malaysian

and Indonesian tourists.

Fig 71 Singapore’s mass market volumes grew by 6% in 2014

Fig 72 GENS continues to trail MBS in mass market due to location disadvantage


Given GENS’ renewed focus on “mass market”, we believe it could win back some market

share from MBS in 2015E. We are building in 7% mass market GGR growth for GENS in

2015E. However, we think the street is overly bullish, building in 15% mass market growth

due to high expectations for the new “Jurong Lake Hotel”.

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14

US$mn

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14

US$ mn

12

11

12

13

0 5 10 15 20 25 30 35

2011

2012

2013

2014

MBS GENS

26

28

28

27

US$bn

30

55% 57% 56% 57%

45% 43% 44% 43%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2011 2012 2013 2014

MBS GENS

GENS to slow down

direct credit

extension


30 April 2015 33

While the new hotel will add a significant 35% of hotel capacity, given its location and lower

quality than the current GENS hotels, we think the average room rate could be around

S$150-200 versus the current average room rate of around S$450 for GENS’ hotel rooms.

Thus, we see an uplift of only 3% to GENS’ group profits from 2016E from the new hotel.

Fig 73 We are building in 7% mass market GGR growth for GENS in 2015E…

Fig 74 We are building in “non-gaming” growth for GENS in 2016E – driven by the new “Jurong Lake Hotel”


Tourist arrivals to SG continue to decline sharply

Tourist arrivals to SG overall were down 3% in 2014 out of which Chinese tourists were down

24% YoY. The trend has continued in 2015, with Chinese tourist arrivals down another 25%

YTD and Indonesian tourists down 17% YoY.

Indonesia, China and Malaysia make up around 40% of Singapore’s total tourists. While

Singapore’s VIP gaming depends mostly on Chinese VIP players in our view, the mass

market gaming depends mostly on Indonesia and Malaysia tourists in our view.

The sharp decline in all 3 of these countries’ tourists implies that both VIP and mass market

gaming volumes will remain under pressure in 2015E, in our view.

Fig 75 Tourist arrivals from all three key countries – China, Indonesia and Malaysia - are declining sharply

Fig 76 Indonesia, China and Malaysia tourists make up ~40% of Singapore’s total tourist arrivals, 2014

Source: Singapore Tourism, Macquarie Research, April 2015 Source: Singapore Tourism, Macquarie Research, April 2015

1,575 1,555

1,653

1,769

1,400

1,450

1,500

1,550

1,600

1,650

1,700

1,750

1,800

2012 2013 2014 2015E

US$mn

130 185

238 242 274 303 92

82

87 91 95

100

0

100

200

300

400

500

600

700

800

2011 2012 2013 2014E 2015E 2016E

Rooms Food & Beverage USS

S$m

-24%

-25%

-2%

-17%

-4%

-4%

-30% -25% -20% -15% -10% -5% 0%

2014

2015YTD

Malaysia Indonesia China

Indonesia20%

China11%

Malaysia8%

Japan7%

Australia6%

India5%

Philippines6%

Others37%

Jurong lake hotel to start full operation in 2016E


30 April 2015 34

SGD’s continued strength against MYR and IDR also has a negative impact on tourist arrivals

The SGD has gained as much as 44% against the IDR since the 2 casinos opened in 2Q10

while it has gained 15% against the MYR. These 2 countries are significant contributors to

Singapore’s “mass market volumes” in our view, and the weakening of those two currencies

further negatively impacts the tourist arrivals and hence the revenue potential from the mass

market in our view.

Fig 77 Since the casinos opened in 2Q10, SGD has gained 15% against the Malaysian Ringgit

Fig 78 Since the casinos opened in 2Q10, SGD has gained 44% against the Indonesian Rupiah


2.300

2.350

2.400

2.450

2.500

2.550

2.600

2.650

2.700

2Q104Q102Q114Q112Q124Q122Q134Q132Q144Q14

SGD / MYR

6000

6500

7000

7500

8000

8500

9000

9500

10000

SGD / IDR


30 April 2015 35

Valuations – Consensus too bullish on recovery in 2015

Consensus is building in 20% profit growth in 2015 and another 10% in 2016.

Fig 79 Consensus building in 20% profit growth in 2015E

Fig 80 Our estimates are 14% and 17% below consensus for 2015E and 2016E respectively

Source: Bloomberg, April 2015 Source: Bloomberg, Macquarie Research, April 2015

Trading multiples still quite rich

GENS is currently trading at 23.1x 2015E P/E and almost 2x P/B. With very minimal 4%

CAGR earnings growth that we project over the next 3 years and 7-8% ROEs, these

valuations are clearly too expensive to us currently.

Fig 81 P/E multiples of 20-22x are not justified… Fig 82 …when earnings growth is only 3-6%


517

618

682

775

0

100

200

300

400

500

600

700

800

900

2014A 2015E 2016E 2017E

Consensus profit estimate

S$m

618

682

775

533 567 585

0

100

200

300

400

500

600

700

800

2015E 2016E 2017E

Consensus profit estimate Macquarie profit estimate

S$m

21.8

20.5

19.9

18.5

19.0

19.5

20.0

20.5

21.0

21.5

22.0

2015E 2016E 2017E

P/E

3%

6%

3%

0%

1%

2%

3%

4%

5%

6%

7%

2015E 2016E 2017E

Earnings growth


30 April 2015 36

Fig 83 P/B multiples of 1.3-1.5x are not justified… Fig 84 …when ROEs are only 6-7%


1.5

1.4

1.3

1.3

1.3

1.4

1.4

1.5

1.5

1.6

2015E 2016E 2017E

P/B

7.0%

7.1%

6.9%

6.8%

6.9%

6.9%

7.0%

7.0%

7.1%

7.1%

7.2%

2015E 2016E 2017E

ROE


30 April 2015 37

Australia Economic backdrop remains dicey, but weakening A$ a positive

Australia’s economic outlook remains challenged, as the economy’s transition from mining to

non-mining growth looks to have faltered. Capex expectations data for 2015/16 revealed that

non-mining investment is on track to decline, rather than continuing to lift and provide a

source of demand and employment growth to take over from the mining investment downturn.

We model 2015 GDP growth of +2.1%, and +2.9% in CY 2016.

Growth rates and consumer confidence are likely to differ across Australia. We anticipate

Western Australia growth trends to remain soft, weighing on Crown Perth earnings, as

downgrades to key bulk commodity prices pose a challenge to domestic incomes. The

outlook for Sydney, and to a lesser extent Brisbane and Melbourne, should be relatively more

attractive, driving mid-single-digit growth in main gaming floor earnings for The Star (Sydney),

Crown Melbourne, Treasury (Brisbane), and Jupiters Gold Coast.

The combination of weaker commodity prices, challenged domestic growth environment, and

the RBA easing bias, will likely combine with a number of other factors to see the A$ push

below the US$0.70 cent mark. We expect a low of US$0.67 is likely during CY 2016.

The weak AUD setting remains positive for the Australian tourism sector, with the gaming

sector likely to benefit based on increased visitation, primarily driven by greater domestic

tourist visitation as overseas travel becomes relatively more expensive. In addition, the lower

AUD is also likely to boost turnover based on the translation effect, as foreign gamblers are

likely to bet at a greater size and thereby lifting turnover. We anticipate Echo’s Queensland

properties, most notably Jupiters Gold Coast, The Star, and Crown Melbourne, as likely the

greatest beneficiaries of increased tourist traffic.

Fig 85 Australia’s economic outlook remains challenged


2.982.72 2.66

2.47

1.90 2.03 2.15 2.20

2.67 2.78 2.913.08 3.19 3.29 3.46 3.42

0.60

1.10

1.60

2.10

2.60

3.10

3.60

Australia Real GDP (y/y % chg)

(y/y % chg)

Andrew Russell [email protected]

+61 2 8232 9390

Recent publications Feb 2015: The Star firing

Jan 2015: No royal flush, but valuation appeals


http://r.macq.co/_OTY5NzAy

http://r.macq.co/_OTYyMzE1

http://r.macq.co/_OTYyMzE1


30 April 2015 38

Fig 86 We have recently lowered our forecasts for the AUD vs the USD


VIP growth remains sustainable, however competition is strong

There appears no doubt that competition is increasing in the global VIP business, with

Australia accounting for approximately just 3.5% of global VIP revenue. Singapore remains

the most notable competitor for Asian VIPs/tourists. Singapore’s casinos offer a lower tax rate

(7%) on VIP gaming than Australia (10-12%), with the Singapore government focused on

attracting high value players to Singapore’s two integrated resorts – Marina Bay Sands and

Resorts World Sentosa. New property additions in Korea, Malaysia and the Philippines have

also heightened the competitive dynamic.

Despite these competitive pressures, we see a number of factors which support the

Australian gaming industry realising a greater share of the international VIP market. These

include:

Lower VIP tax profile improves ability to attract junkets. We model VIP

commissions at ~1.70% of rolling chips turnover, representing a 0.20% premium to

most Asian regional competitors and a 0.45% premium to Macau. This greater

commission/rebate rate is underpinned by a lower VIP tax structure in Australia, with

domestic casinos taxed at a rate of 10-12% of VIP revenue, compared with 40% in

Macau. We view this setting favourably for Australian casino operators as it allows

them to offer greater incentives/rebates to attract VIPs, either directly or via junkets,

to Australian casinos.

Excess capacity in Australian casinos. Contrary to Macau, domestic casinos

currently operate at a level which we view as below maximum capacity, while also

offering notable headroom to expand floor-space and VIP dedicated rooms. Capex

plans, as noted below, for the three major listed Australian and New Zealand firms

highlight the expansion opportunities that each operator currently plans. Per our

count, we estimate 1,566 gaming tables (including MTGMs) as at the end of FY14,

and 11,131 slot machines operating on casino floors through Australia. With a

number of new property openings slated over the next 5 years (as detailed below),

we model total gaming tables increasing by 644 tables to 2,209 in FY20, and slot

machines increasing by 858 machines to 11,989 in FY20.

An alternative source of credit for players. Both Crown and Echo offer credit

directly to VIP customers. While direct credit as a percentage of overall VIP turnover

has declined in recent years as domestic operators increase their interaction with

junket operators, we estimate that ‘direct’ still accounts for approximately one-third of

overall VIP turnover, albeit with notably tight credit conditions offering reduced

default risk to Echo and Crown. With liquidity underpinning junket operations out of

China in question due to a clampdown on corruption and a tightening in shadow

bank lending, we view Crown and Echo’s solid financial footing and willingness to

extend credit, albeit under tight limits, as a positive.

0.92 0.94

0.880.82

0.76

0.70 0.68 0.67 0.67 0.68 0.69 0.71 0.730.76 0.77 0.78

0.60

0.70

0.80

0.90

1.00

AUD/USD (per end)

(AUD/USD)

Aussie operators

are able to offer

higher junket

commission than

Macau


30 April 2015 39

Fig 87 Australian VIP GGR growth has averaged approx. 12% annually since 2009. Our base case assumes relatively flat VIP growth between FY16-19, before the opening of Crown Sydney in FY2020.


Fig 88 Australian VIP market share changes between 2009-2014 – By major casino

Fig 89 Australian VIP market share changes between 2009-2014 – By operator


0.67 0.73 0.780.95

1.06 1.10

1.64 1.70 1.74 1.78 1.83

2.17

2.582.75

0.0

0.5

1.0

1.5

2.0

2.5

3.0

FY09 FY10 FY11 FY12 FY13 FY14 FY15e FY16e FY17e FY18e FY19e FY20e FY21e FY22e

Crown Melbourne Crown Perth The Star Echo - Queensland Crown Sydney Sky Adelaide Other

VIP GGR(A$bn)

-6%

-6%

11%

-2%

5%

2%

-4%

-10% -5% 0% 5% 10% 15%

Crown Melbourne

Crown Perth

The Star

Echo - Queensland

Sky Auckland

Sky Adelaide

Other

-9.5%

11.3%

-0.1%

-1.7%

-15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0%

Crown

Echo

SKYCITY

Other


30 April 2015 40

Chinese tourists a major driver of Aust. GGR, boosted by a weak AUD

The vast majority of visits to Australian casinos are from Australian residents, who account for

as much as 95% of casino visitation, per industry feedback. Our estimates suggest that

visitation by Chinese gamblers alone accounts for ~74% of Australian VIP GGR, representing

approximately 19% of total Australian GGR. As such, growth in total Australian GGR will most

likely be linked with growth in international inbound visitation.

Per Tourism Australia statistics, Chinese tourists now account for 11.6% of total inbound

visitors to Australia, with absolute numbers growing at an average of 17% annually since

2009. Tourism Australia forecast Chinese tourist visitation to Australia to grow at an average

annual rate of 8.7% through 2018, at which point Chinese inbound visitors will account for

14.0% of total inbound visitors.

In addition, a weaker AUD is likely to further boost Australian GGR, based on increased

visitation and the translation effect on gaming turnover. We view a weaker AUD as likely to

boost visitation to Australian casinos, as domestic tourism increases due to the cheaper

expense when compared against international travel, while Australia becomes a cheaper

destination for international tourists. On top of this, Australian casino GGR is likely boosted by

international tourists and the translation effect, especially VIPs, who generally have a set

budget in regards to gambling based on their local currency – a 10% drop in the AUD would

likely lead to increased turnover as players increase their bet limits.

Fig 90 Chinese tourism forecasts

FY12 FY13 FY14 FY15e FY16e FY17e FY18e

International Visitors - arrivals by market

China ('000) 575.3 678.8 764.8 845.0 920.9 1,003.5 1,083.2

Total ('000) 5,872.3 6,161.9 6,581.1 6,954.0 7,301.2 7,654.0 7,994.8

Chinese % of total 9.8% 11.0% 11.6% 12.2% 12.6% 13.1% 13.5%

% yoy chg 17.0% 18.0% 12.7% 10.5% 9.0% 9.0% 7.9%

International Visitor Arrivals – Chinese Visitors

Holiday 285.2 359.0 423.4 470.7 512.6 562.4 611.0

Visiting family & relatives 98.9 116.3 142.9 156.7 172.7 187.1 200.2

Business 61.3 66.0 62.2 65.2 69.6 73.9 77.6

Other 129.8 137.4 136.3 152.5 166.0 180.1 194.5

Total 575.3 678.8 764.8 845.0 920.9 1,003.5 1,083.2

Inbound Expenditure ($m) 3,932.8 4,657.6 5,221.5 5,762.1 6,286.1 6,847.1 7,400.5

International Visitor Arrivals - Chinese - Growth

Holiday 28.8% 25.9% 17.9% 11.2% 8.9% 9.7% 8.6%

Visiting family & relatives 16.0% 17.6% 22.8% 9.7% 10.2% 8.3% 7.0%

Business -5.1% 7.6% -5.8% 4.8% 6.8% 6.1% 5.0%

Other 7.7% 5.9% -0.8% 11.9% 8.8% 8.5% 8.0%

Total 17.0% 18.0% 12.7% 10.5% 9.0% 9.0% 7.9%

Inbound Expenditure ($m) 7.4% 18.4% 12.1% 10.4% 9.1% 8.9% 8.1%

Source: Tourism Australia, Macquarie Research, April 2015

Additional factors which support increased Chinese visitation to Australia include:

Improved transport accessibility from China. During 2014, 100m Chinese tourists

travelled abroad, which is anticipated to increase to approximately 200m by 2020 per

industry forecasts. In 2014, approximately 765,000 Chinese tourists visited Australia.

To share in this growth to 2020, aviation capacity from China to Australia over the

next two years is expected to triple, per an agreement with the Department of

Foreign Affairs and Trade.


30 April 2015 41

Simplified visa processing required. In a Hotels.com survey in 2014, Australia

ranked as the number 1 destination on a wish-list of top destinations by Chinese

tourists. Despite this, Australia does not even rank in the top 10 destinations that

Chinese tourists actually travel to, with Australia accounting for less than 1% of

tourist destinations frequented by Chinese tourists. Despite this, recent visitor visa

application data highlights that Australia continues to be a popular destination for

Chinese tourists. The past year has seen a 21% increase in visitor visa applications,

with Immigration Department figures showing close to 600k visitor visa applications

from China were lodged in 2014. More recently, Chinese New Year visitor visa

volumes in 2015 climbed 23%, relative to the corresponding period in 2014. With this

in mind, further growth in visitation numbers will likely continue as Australia’s visa

application process is simplified and online lodgement offered – a setting which

Australia’s Immigration Department aims to achieve by the end of 2015.

Greater non-gaming attractions. Australia ranks highly with Chinese tourists as a

holiday destination, benefiting from a favourable offering across sightseeing, food,

hotels, gaming and shopping, supporting Chinese tourists’ desire for new

experiences.

Fig 91 Casinos are seen as a popular activity by tourists…

Fig 92 …especially Chinese, Taiwanese and Koreans

Source: Tourism Australia; February 2013 Source: Australian Productivity Commission; April 2009

Fig 93 Average trip expenditure by incoming tourists to Australia

Fig 94 Average trip expenditure spent on gaming by tourists in Australia

Source: Tourism Australia, Macquarie Research, April 2015 Source: Tourism Australia, Macquarie Research, April 2015

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

%age visited

49%

39%36%

34%

30%

26%26%26%24%23%23%

21%20%17%16%15%

0%

10%

20%

30%

40%

50%

60%

4000

4500

5000

5500

6000

6500

7000

7500

8000Avg. expenditure (A$)

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

Japan China New Zealand

Other Total USA UK

%age of Tourists visiting casinos – by nationality


30 April 2015 42

New licences to boost the Australian market

Gaming licences in the Australian market are governed by the individual State gaming

authorities. There have been a number of recent licence announcements which we view as a

positive catalyst for the wider Australian casino industry. With Crown Sydney the next major

casino to open in mid-2019, we view this as notably positive for the overall market, with two

major casinos combining with the ongoing popularity of Sydney as a tourist destination to

boost overall Sydney VIP GGR. We model GGR for Sydney (The Star plus Crown Sydney) to

reach $2.5bn in FY21, up from $1.1bn in FY14, and accounting for ~35% of Australian GGR.

Fig 95 Australian GGR forecast – we model growth from $4.2bn in FY14 to $7.0bn in FY21, representing a CAGR of +7.9%, driven by an increase in VIP revenue, mid-single-digit growth in main gaming floor revenue, and new casino openings


We outline the key licence approvals below:

Crown Sydney – Projected opening mid-2019.

o Crown has announced plans to develop and operate a six-star hotel

resort, including VIP gaming facilities, at Barangaroo South,

Sydney. Crown was issued a restricted gaming licence in July 2014,

which will be effective following the end of The Star’s exclusivity

licence in 2019.

o The hotel will feature approximately 350 rooms and suites, VIP

gaming facilities, apartments, restaurants and bars, retail outlets,

conference rooms and resort pool and spa facilities.

o We model total project spend of $2.0bn, offset by $500m in

apartment sales.

Queen’s Wharf Brisbane – Construction likely commencing 2017

o The Queensland Government have outlined plans to develop a

large scale integrated resort and entertainment precinct, including

the issuance of a new casino licence, located at Queen’s Wharf in

Brisbane’s CBD. The final two proponents (two separate JV’s

involving both Crown Resorts and Echo Entertainment) unveiled

their design concepts in December 2014.

o An announcement on the successful proponent was due early

2015, but the change of government in Queensland has pushed

back this timeline to mid-to-late 2015. Construction is anticipated to

commence in 2017.

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

FY13 FY14 FY15e FY16e FY17e FY18e FY19e FY20e FY21e

Other

Sky Adelaide

Crown Sydney

Echo - Queensland

The Star

Crown Perth

Crown Melbourne

GGR (A$m)

$4.2bn

$7.0bn


30 April 2015 43

o Echo Entertainment have partnered with Chow Tai Fook

Enterprises and Far East Consortium to submit a bid. If successful,

Echo’s existing Treasury Casino and Hotel will be converted into

premium retail facilities and a new six-star hotel. Echo is anticipated

to have a 50% stake in only the integrated resort portion of the

development, receiving a fee to operate and then a percentage of

the remaining earnings.

o Crown Resorts have partnered with Greenland Holdings to lodge a

proposal for the Queen’s Wharf Brisbane site. If successful, Crown

intends to manage the integrated resort portion of the development,

and have a minority ownership interest (20-30%) in only that part of

the precinct.

In addition, the Queensland government is offering up to two additional

casino licences for major integrated resort developments in other parts of

Queensland.

Capital flows bolster domestic offering

A number of Australian casinos are undergoing a period of expansion and refreshing, the

levels of which have not been since their construction. When analysing the capex spend,

we view the key issue is the return on investment that the properties can secure over time.

Below we outline the major pending capex commitments in the Australian market, and take

a look at the return profile.

The motive behind these upgrades lies part in expanding the physical capacity of the

properties to accommodate recent and future growth, part in modernising properties, part

in securing additional gaming product through agreements with State Governments (e.g. -

tax for tables), and part to accommodate and compete for the rapidly growing VIP

customer segment.

Key expansion/refresh projects include:

Star City - $500m refresh over five years

o Echo have outlined plans to spend $500m over the next five years

for the next stage of the expansion of the Star ahead of Crown

Sydney’s opening in 2019, beginning in FY16.

o The capex is targeted towards expanding the main gaming floor,

refreshing the restaurant and bar facilities, expanding and

redeveloping the VIP gaming salons, and a refurbishment of the

Astral Residences apartments.

Jupiters Gold Coast - $345m refresh through 2017

o Echo are in the midst of a $350m refresh on the Gold Coast through

2017, with the majority of spend earmarked for 2016. The project is

anticipated to significantly expand gaming facilities through private

gaming rooms and approximately 30 tables to increase Jupiters’

VIP offering.

o The staged construction timeline should limit any earnings impact

over the next two years.

o Importantly, further capacity beyond the current capex exists to

expand gaming facilities.

Crown Towers Perth - $645m expansion

o Construction is underway on Crown Towers Perth, offering a six-

star hotel to feature 500 luxury hotel rooms and suites, private

gaming rooms, restaurants and bars, a convention centre, retail

outlets, and resort pool and spa facilities.


30 April 2015 44

o The expansion should take the total count of electronic machines to

2,500 in January 2017, and table games to 320 in January 2016,

with a potential option for a further 30 tables once the expansion is

complete.

o The project is targeted for completion by December 2016.

Crown Melbourne hotel expansion

o Crown has also entered into a JV with the Schiavello Group for a

five-star hotel and apartment complex on a site adjacent to the

Crown Melbourne complex. Crown has the right to acquire and

manage the hotel on completion, with the parties to share the

apartment development 50:50.

o Crown has made an initial investment of $50m to acquire a 50%

share of the land.

Sky Adelaide - $350m expansion recently completed

o SKYCITY outlined its concept plan for the $350m Adelaide

redevelopment in 2012, comprising a casino expansion, new

signature food & beverage offerings and a boutique six-star hotel.

Valuation

We remain positive on the outlook for the Australian casino sector, rating both Echo

Entertainment (EGP AU) and Crown Resorts (CWN AU) at Outperform. We hold a Neutral

rating on SKYCITY.

Echo Entertainment (OP, A$5.10 TP). Echo continues to build operational

momentum and improving returns across its portfolio of properties, led by a strong

turnaround in operating metrics at The Star, combined with a notable uptick in VIP

revenues. Our $5.10 target price implies an EV which sits at 7.9x our FY15 EBITDA

estimate and 19.6x our FY16 EPS.

Crown Resorts (OP, A$17.00 TP). We see notable value in CWN’s portfolio, with its

domestic properties currently trading at an implied EV/EBITDA (FY1) of 7.5x. We use

a blended SOTP/DCF methodology to derive our A$17.00 target price. Our DCF

valuation of $17.90 is tempered by our SOTP valuation range of $15.02-16.27

(based on a domestic EV/EBITDA multiple of 8.5-9.5x, and a 10% holding discount

to our US$22.20 MPEL TP).

SKYCITY Entertainment (Neutral, NZ$3.80 TP). While momentum remains strong

for Auckland, and a stronger trading performance is expected from Adelaide, SKC is

entering a period of uncertainty, with mounting financial risk. Our $3.80 TP implies a

FY2 PER of 14.3x.

Fig 96 Australian gaming sector financials

Macq. Rating Price* TP

Mkt Cap (A$m)

Div Yield

EV/EBITDA PER ND/

EBITDA FY15E FY16E FY15E FY16E

Crown Resorts CWN OP 13.27 17.00 7,731 2.8% 12.8x 11.7x 16.6x 15.6x 2.7x Echo Entertainment EGP OP 4.52 5.10 2,985 2.4% 8.3x 8.2x 17.3x 17.5x 1.2x SKYCITY SKC N 4.11 3.80 1,838 5.1% 9.8x 8.7x 17.8x 15.6x 2.3x

Avg. 4.3% 10.8x 10.5x 17.4x 16.0x 2.1x

Source: Company data, Macquarie Research, April 2015. Pricing as at April 29, 2015.


30 April 2015 45

Fig 97 Asia casino valuation comps

Fig 98 Crown & Echo valuation – PER (FY2)


11.8x12.6x

13.8x 13.8x 14.0x14.7x

16.6x 16.6x17.3x 17.6x 17.8x

21.2x

10.0x

12.0x

14.0x

16.0x

18.0x

20.0x

22.0x PE (FY2)

6.3x 6.3x

8.7x9.2x

10.1x 10.6x11.7x 12.0x 12.3x

13.7x 13.7x 13.8x

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

16.0x EV/EBITDA (FY1)


30 April 2015 46

Macquarie vs consensus

Fig 99 Macquarie vs Consensus estimates: Echo Entertainment

Echo Entertainment - Sales, EBITDA, & EPS (A$m, except EPS)

Macquarie Estimates & Variance

Consensus Estimates

Company Name Identifier Rating Metric FY0 FY1 FY2 FY0 FY1 FY2

Echo Entertainment EGP-AU Outperform Sales 1,805.7 2,309.4 2,393.6 1,805.7 2,271.0 2,372.6

EBITDA 419.1 518.3 525.1 419.1 500.3 523.8

EBITDA Margin

23.2% 22.9% 23.0% 23.2% 22.0% 22.1%

EPS 0.192 0.265 0.259 0.192 0.246 0.265


Fig 100 Macquarie vs Consensus estimates: Crown Resorts

Crown Resorts - Sales, EBITDA, & EPS (A$m, except EPS)


Consensus Estimates


Crown Resorts Limited CWN-AU Outperform Sales 3,078.8 3,391.4 3,575.5 3,078.8 3,281.6 3,420.7

EBITDA 798.7 888.7 984.4 798.7 865.7 901.2

EBITDA Margin

25.9% 26.2% 27.5% 25.9% 26.4% 26.3%

EPS 0.879 0.769 0.832 0.879 0.809 0.873

Source: Bloomberg, April 2015

Fig 101 Macquarie vs Consensus estimates: SKYCITY Entertainment

SKYCITY Entertainment - Sales, EBITDA, & EPS (A$m, except EPS)


Consensus Estimates


SKYCITY Entertainment SKC-NZ Neutral Sales 902.5 922.3 1,021.4 902.5 926.9 991.1

EBITDA 283.7 292.7 349.8 283.7 307.5 338.0

EBITDA Margin

31.4% 31.7% 34.2% 31.4% 33.2% 34.1%

EPS 0.213 0.218 0.266 0.213 0.224 0.248



30 April 2015 47

Philippines We have an Overweight view of the Philippines gaming sector, emphasizing capacity driven

growth coupled with strong local demand (less reliance on Chinese VIP). In our view, the

sector is still in its nascent, ramping-up stage, promising growth in the medium to long term.

The Philippines gaming sector tackles higher growth versus other locations in the region

because of new capacity which is always a positive for the gaming sector.

The lack of new capacity has been the challenge for markets like Macau and Singapore

especially last year, and the fact that the Philippines gaming sector should grow capacity by

4x from 2010 to 2018 puts the latter in a better position for growth. We see the Philippines

gaming sector growing steadily, with integrated resort players still having almost 20 years of

concession left. Infrastructure development is also underway, and this will only improve the

competitive standing of Philippines gaming versus regional gaming destinations.

It is easier to grow in Philippines gaming given lower tax rates and incentives available to

operators. Unlike in Macau, the Philippines also does not have constraints in talent or labour

shortages. Land and expansion of existing gaming spaces or developments are not an issue

for local operators as well, unlike their counterparts in Macau and Singapore.

Valuation

We are more positive in our outlook on Philippines gaming than other locations in Asia. As

noted earlier, the differences in the competitive landscape convince us to put a premium on

Philippines gaming versus Macau. Investors should pay a premium on Philippines gaming

because of superior earnings growth prospects, strong domestic market and less volatile VIP,

capacity build-up, and longer concession length.

We base our valuation on individual cash flows (DCF) of gaming comps, supported by

EBITDA multiples. While Macau deserves a de-rating from its mid-teens valuation range, we

believe Philippines gaming companies should trade at c.12x EBITDA. Fundamentals remain

intact, and while we anticipate negative sentiment on the VIP market to persist this year, we

expect a negligible effect on volume growth for local gaming players.

Fig 102 Philippines gaming – valuation table

Mkt cap

TP Sh price

Up/ Down

PER (x)

EPS growth (%)

PBV (x)

ROE (%)

EV/EBITDA (x)

Yield (%)

US$m LC LC side Rec 2015E 2016E 2015E 2016E 2015E 2016E 2015E 2016E 2015E 2016E 2015E 2016E

BLOOM PM 2,831 14.30 11.50 24% OP 20.0 15.5 24.7 29.3 4.4 3.4 26 25 10.2 8.6 0.0 0.0 RWM PM 2,455 8.80 6.78 30% OP 16.0 15.4 16.3 3.7 2.4 2.2 16 15 7.2 6.4 1.2 1.3 MCP PM 1,009 11.40 9.10 25% OP 32.7 18.1 nmf 80.3 2.8 2.4 9 15 7.9 5.8 0.0 0.0 PLC PM 1,108 2.00 1.64 22% OP 26.6 15.0 56.2 77.0 3.0 2.9 12 21 14.7 9.4 3.2 5.6 Average 18.9 16.1 64.7 17.1 3.5 2.9 27 28 9.8 8.3 1.2 1.5

Source: Bloomberg, Macquarie Research, April 2015. Price date: April 29, 2015.

RJ Aguirre [email protected]

+63 2 857 0890

Recent publications Jan 2015: the better alternative

Lower tax, labour

costs than Macau,

and no concession

concerns


http://r.macq.co/_OTYyNDI0


30 April 2015 48

GGR Forecast: Tourism driven GGR growth with stable VIP/Mass split

Overall, we forecast the Philippines gaming market to grow by 15-20%pa over the next three

years and become a US$4.8bn market (based from forecasts of third party experts Spectrum

Gaming and Innovation Group). A majority of this gaming growth will be captured in Manila

given the quality of the properties that are being added and the operators that are entering

the market. This would be driven by a 50%-50% split between the domestic and international

gaming markets. We also forecast the VIP/Mass split will remain at 51%/49% level as we do

not expected the gamblers composition will change dramatically in next three years.

Meanwhile, the GGR proportion from China tourists will see no large increase as the potential

politic conflicts between two countries will negatively constrain the Chinese visitation in some

degree.

Fig 103 Gaming revenue forecast

Source: Innovation Group, Spectrum, Macquarie Research, April 2015

Fig 104 Gaming revenue breakdown

US$ mn 2011 2012 2013 2014 2015E 2016E 2017E

GGR 1,320 1,800 2,220 2,710 3,270 3,960 4,550 VIP 647 882 1,088 1,328 1,602 1,940 2,230 Mass 673 918 1,132 1,382 1,668 2,020 2,321 China 264 360 510 731 818 950 1,183

Source: Innovation Group, Spectrum, Macquarie Research, April 2015

0.56 0.60 0.81 1.08 1.45 1.61 1.81 2.08 2.21 2.39

0.09 0.110.17

0.240.35

0.731.17

1.862.15

2.40

0.00

1.00

2.00

3.00

4.00

5.00

6.00

2008 2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E

Local International

US$bn


30 April 2015 49

Fig 105 VIP/Mass split Fig 106 China GGR proportion

Source: Innovation Group, Spectrum, Macquarie Research, April 2015 Source: Innovation Group, Spectrum, Macquarie Research, April 2015

Supply side: More integrated resorts in pipeline

Major integrated resorts are expected to rise in Entertainment City, a 120ha reclaimed land

development in the Manila Bay area. PAGCOR expects Entertainment City to attract an

overall investment of US$15bn once all four major integrated resorts licensees open their

doors in a few years’ time. Entertainment City looks to attract 1m additional tourists per year

and generate at least 40k jobs.

Fig 107 Philippines Entertainment City development – estimated size

Project # of slots # of tables # of rooms Opening date

Solaire Manila 1,661 367 800 1Q13 City of Dreams 1,700 365 946 4Q14 Manila Bay Resort 3,000 500 2,000 4Q16 Resorts World Bayshore 1,323 221 1,440 1Q18 Total 7,684 1,453 5,186 Resorts World Manila Ph1 1,837 281 1,226 4Q10


Valuations – Consensus way too bullish on recovery in 2015

We are more positive in our outlook for Philippines gaming than other locations in Asia. As

noted earlier, the differences in the competitive landscape convince us to put a premium on

Philippines gaming versus Macau. Investors should pay a premium on Philippines gaming

because of superior earnings growth prospects, strong domestic market and less volatile VIP,

capacity build-up, and longer concession length.

We base our valuation on individual cash flows (DCF) of gaming comps, supported by

EBITDA multiples. While Macau deserves a de-rating from its mid-teens valuation range, we

believe Philippines gaming companies should trade at c.12x EBITDA. Fundamentals remain

intact, and while we anticipate negative sentiment on the VIP market to persist this year, we

expect a negligible effect on volume growth for local gaming players.

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E

VIP Mass

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E

China Non-China


30 April 2015 50

Fig 108 Valuation summary

BEL PM BLOOM PM MCP PM PLC PM RWM PM

Current price 4.14 11.50 9.10 1.64 6.78 TP 7.3 14.3 11.4 2.0 8.8 Upside (%) 76 25 25 22 30 EV/EBITDA (x) FY15E 11.5 10.2 7.9 14.7 7.2 FY16E 9.5 8.6 5.8 9.4 6.4 Target (FY15E) 14.0 12.7 9.0 18.3 9.2 Target implied FY16E 12.0 10.7 6.6 11.7 8.3

DCF - using WACC CoE 12.80% 12.80% 14.60% 11.30% 12.20% CoD 4.20% 3.50% 4.40% 3.50% 4.10% D-E split 25.00% 40.00% 40.00% 40.00% 40.00% WACC 11.10% 9.10% 10.50% 8.20% 8.90% Positives hybrid exposure additional capacity new casino no capex, no debt increasing margins wide discount to PLC critical mass in Entertainment City premium mass high dividend yield reliable mass market stable income focus on operations downside earnings

protection

Negatives indirect play dependence on VIP high leverage complex partnership no new capacity high leverage complex partnership no operational control far from Entertainment

City



30 April 2015 51

Fig 109 Operator cheat sheet – Philippines

Resorts City Unit Solaire World Manila of Dreams Total

Basic Information Company BLOOM PM RWM PM MCP PM/PLC PM Market Cap US$m 2,831 2,455 1,009/1,108 Gaming Segment (2016E) No. of Avg Tables 367 379 365 1,111 No. of Slot Machines 1,661 1,788 1,650 5,099 No. of Hotel Rooms 800 1,453 950 3,203 Retail area sqm 160,000 11,534 175,000 Win Rate (2014E) VIP % 4.9% 2.3% 2.9% 3.3% Gross Gaming Revenue (GGR) by Category 2015E

Table Games PHP mn 33,066 20,627 15,632 82,340 Slot Machine PHP mn 6,112 8,514 7,366 23,574 39,177 29,140 22,997 105,914 EBITDA/table/day PHP 125,358 107,048 69,296 100,568 Financial performance Total revenues FY14E PHP mn 24,917 29,693 430 55,040 FY15E PHP mn 31,108 28,979 23,862 83,948 FY16E PHP mn 36,176 29,648 34,490 100,314 VIP % 45% 46% 11% 36% Mass Market % 49% 49% 73% 56% Non-gaming % 6% 4% 16% 8% EBITDA FY14E PHP mn 10,490 11,515 (3,062) 18,924 FY15E PHP mn 14,164 13,249 6,755 34,168 FY16E PHP mn 16,792 14,809 9,232 40,833 Net Profit FY14E PHP mn 4,897 5,756 (6,303) 4,350 FY15E PHP mn 6,336 6,693 1,233 14,262 FY16E PHP mn 8,189 6,937 2,223 17,350 EBITDA Margin FY14E % 42% 39% -716% 34% FY15E % 46% 46% 42% 41% FY16E % 46% 50% 41% 41% Net Margin FY14E % 20% 19% -1,465% 8% FY15E % 20% 23% 5% 17% FY16E % 23% 23% 6% 17%

Source: Company data, Macquarie Research, April 2015; prices as of 27 April 2015

Fig 110 Consensus revenues and earnings

Revenues Adjusted Earnings

Pm

2015E

2016E

2014-2016E gr (%)

2015E

2016E

2014-2016E gr (%)

BLOOM PM 29,936 33,855 20.2 1,389 3,088 38.9 MCP PM 28,134 36,527 29.8 1,641 3,355 122.3 PLC PM 4,716 6,436 37.2 2,969 4,112 103.4 RWM PM 34,663 39,221 12.1 6,848 7,850 22.1



30 April 2015 52

Fig 111 Macquarie revenues and earnings estimates

Revenues Earnings

Pm

2015E

2016E

2014-2016E gr (%)

2015E

2016E

2014-2016E gr (%)

BLOOM PM 31,108 36,176 23 6,336 8,189 34 MCP PM 23,862 34,490 44 1,233 2,223 80 PLC PM 3,4670 5,390 106 1,950 3,452 88 RWM PM 28,979 29,648 0 6,693 6,937 10



30 April 2015 53

Malaysia We remain relatively bullish on mid- to long-term growth prospects for Malaysia gaming, as

they are less dependent on North Asia punters, with bulk of its punters from Malaysia,

Singapore and Indonesia. GGR growth in 2015 is expected to be weak, due to weaker

consumer sentiment and ongoing renovation work; we believe the impact is short-term in

nature.

However the prospect post-2015 remains bullish, as we believe that the Genting Integrated

Tourism Plan (GITP) program embarked on by Genting will help reenergize Malaysia,

attracting more visitation up to the highlands. Although the incremental visitation is targeted at

the mass market segment, we believe indirectly it attracts VIPs too. As such we maintain our

Outperform recommendation on Genting Malaysia (GENM MK).

Valuation

We believe that the biggest resistance to Genting Malaysia is the perception of its assets,

especially Genting Highlands as most view it as a mature asset which generates around

RM2bn EBITDA with limited growth over the past five years. The perception is expected to

change, as we are confident that the GITP project will reenergize the property and attract

higher visitation.

Fig 112 We believe that GENM valuation is not demanding


Our TP implied valuation at 12x FY15E EV/EBITDA (core 10x) is not aggressive relative to its

global peers at 7x-14x EV/EBITDA (ex-Macau), and also its historical forward average of 10x

EV/EBITDA. Our valuation is based on sum-of-parts of the value of each of GENM assets.

Fig 113 Genting Malaysia Sums of Parts Valuation – RM 5.29/shr

Asset Valuation Methodology EV/EBITDA Valtn (RM)

Genting Highlands 2016 EV/EBITDA 10.0 20,982 Resorts World NY 2016 EV/EBITDA 8.0 2,318 Genting UK 2016 EV/EBITDA 8.0 2,317 Genting Hong Kong Sum-of-parts 2,341 Resort World Bimini NPV 180 Resorts World NEC (Birmingham) NPV 2,080 Miami Property Balance sheet 900

Enterprise Value 31,117 Net Debt/(Cash) Balance sheet (2,209)

Equity Value 33,326 Conglomerate Discount 10% (3,333) No. of Shares 5,671

Value per share RM 5.29


10.0

12.0

6.1 5.8

7.8 7.1

17.3

13.0 13.112.4

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

GENM - crt GENM @ TP Macau Asia Aus/NZ US

CY15 EV/EBITDA

Chi Hoong Ng [email protected]

+60 3 2059 8985

Genting Highlands

has been valued by

market as a no-

growth asset



30 April 2015 54

GGR Forecast: GTIP – Reenergizing Highlands for growth

Fig 114 Significant capex is being invested to revamp the facility

Source: Company Data, Macquarie Research, April 2015

In our view, 2016 will be the inflection point for Genting, as we believe visitation will be on the

rise with the completion of the first phase of the Genting Integrated Tourism Plan (GITP). The

project is important to improve consumer perception of Genting Highlands to attract more

premium mass punters, given most (including investors) view the casino as old and mature.

Fig 115 Net room increases will be in phases, as most of its current rooms will also undergo refurbishment. Currently 30% of the visitors stay overnight.


The new infrastructure investment is needed due to reduce constraints on the capacity

issues, as on a typical weekend, Genting is welcoming ~100k visitors at its facilities. In 2014,

total Macau visitation was at 31mn vs 19mn at Genting Highlands. Management is targeting

visitation of 26mn by 2018, 10% CAGR growth from 2014, albeit our conservative forecast is

only expecting visitation to reach 23.5mn, 7% CAGR growth from 2014.

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2014 2015E 2016E 2017E 2018E 2019E

# of hotel rooms


30 April 2015 55

Fig 116 Our visitors forecast is not as aggressive as management, but still forecasting a 7% CGAR growth from 2014 to 2018

Source: Company Data, Macquarie Research, April 2015

We believe that the incremental visitation will contribute to the growth in mass market GGR,

but we don’t foresee a significant change in the mix of mass and VIP GGR, as management

wants to maintain the profitability of its overall gaming operation. Most visitors will continue to

be dominated by the locals follow by Indonesian and Singaporeans.

Fig 117 We believe the increase in visitation will lead to higher GGR growth

Fig 118 We believe that the management is likely to maintain the punter mix to maintain profitability


Unlike Singapore operators which has a more diverse mass market base due to its tourism

sector, Genting focus will still punters from neighbouring countries. Given the differences

between the Singapore Dollar against all other major currency in ASEAN, mass market

punters might find more value in Malaysia relative to visiting Singapore.

0

5

10

15

20

25

30

2011 2012 2013 2014 2015E 2016E 2017E 2018E

mn # visitors Macq Management

closure of theme park in Sept

0

1,000

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7,000

2011 2012 2013 2014 2015E 2016E 2017E

GGR (RM mn)

2yr CAGR: 3.3%

3yr CAGR: 7.6%

65% 65% 65%60% 58% 58% 60%

35% 35% 35%40% 42% 42% 40%

0%

10%

20%

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2011 2012 2013 2014 2015E 2016E 2017E

Mass VIP


30 April 2015 56

Fig 119 MYR has weakened 3.8% against SGD since beginning of last year

Fig 120 Similar situation for MYR against IDR, which weakened by 4.2%


Fig 121 Continued weakening of MYR relative to its ASEAN peers could further boast visitation

2014 2015E 2016E 2017E

SGD/MYR 2.60 2.79 2.69 2.60 10,000 IDR/MYR 2.78 2.89 2.93 2.86 1,000 PHP/MYR 74.37 84.87 79.58 77.78


Most VIP punters are direct clients of Genting, but Genting Malaysia doesn’t extend credits to

its players, unlikely its sister company in Singapore. They do, however, provide rebates to

direct VIPs, at c1-2% of total play. Management is also selective in Junkets-led VIPs as they

offer competitive commissions to compete with casinos around the region (could be higher

than commissions given by Macau casinos). The main competition in the region for VIPs is

likely to be from Singapore and the Philippines.

Fig 122 The low tax structure (gaming + others) in Philippines, helps the operators to offer more competitive commission to VIP junket to attract punters

Singapore Philippines Malaysia

VIP junket commission

Junkets not allowed 1.5% of rolling chips or c.20% of GGR

GENM does not disclose, but higher than Macau. Players travelling from

afar receive higher percentage Gaming tax VIP 5% gaming tax 15% 25%

Mass 15% gaming tax 25% 25% Corp tax 17% 0% 25% Other taxes 6.54% GST 2% heritage fee 6% GST implemented in Apr 2015


The hype from the opening of the new casinos in the Philippines will certainly attract some

VIPs, but the impact to Malaysia is rather short term given the distance of the travel, in our

view. The junket-led VIP however are at risk for Malaysia, as Philippines casinos are able to

pursue junkets with a higher commission.

0.35

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30 April 2015 57

Fig 123 The flight distance from Malaysia, Indonesia and Singapore to the Philippines is close to 4 hours, the long flying hours might deter mass market punters, but Junkets might be attracted by the higher commissions



30 April 2015 58

Korea Since the share price peak in Aug 2014, Korean gaming stocks have undergone significant

corrections along with regional peers: Paradise plunged nearly 40%, similar to Macau stocks,

and GKL has also fallen 23%. Intuitively, these make sense given that Paradise and GKL

have nearly 60% top-line dependence on Chinese gamblers amid the major crackdown on

the industry by Beijing.

On the other hand, based on our checks with industry sources and our conversation with

investors, we note that Korea’s gaming situation may be a lot better than what investors are

expecting. The following evidence reaffirms our positive stance on the sector.

Fig 124 Regional gaming share price performance


Valuation

The sector is currently trading at 9-11x FY16 EV/EBITDA. We like GKL. The stock used to

trade at a discount to peers given its nature as a semi-government company. However, GKL

seems to enjoy relatively strong top-line growth without much impact of Chinese slowdown.

We anticipate GKL’s earnings to stand out in the region, with a potential positive event of

receiving a new integrated resort license in 2H15, cheap valuation at FY16E EV/EBITDA of

9x, and 3%+ dividend yield.

Fig 125 Valuation snapshot of the related companies

Current TP Up/dn M cap PER (x) EPSg (%) P/BV (x) ROE (x) EV/EBITDA (x)

Code Company Rec (Won) (Won) (%) ($bn) FY15E FY16E FY15E FY16E FY15E FY16E FY15E FY16E FY15E FY16E

114090 GKL OP 40,000 48,000 20% 2,310 17.7 14.9 20.1 18.4 5.0 4.2 30.0 30.2 10.2 8.6 034230 Paradise OP 25,050 29,000 16% 2,127 24.0 19.7 -1.2 22.3 2.3 2.2 9.3 10.9 12.5 10.1

Source: Wisefn, Macquarie Research, April 2015, priced as of 29 Apr 2015. Coson and Sansung L&S figures based on Wisefn consensus

20

40

60

80

100

120

140

160

Jan-14' Mar-14' May-14' Jul-14' Sep-14' Nov-14' Jan-15' Mar-15'

(100 = Jan 2014)

Kangwon

GKL

Paradise

GENS

Galaxy

Wynn

SJM

HongSuk Na, CFA [email protected]

+82 2 3705 8678

Recent publications Apr 2015: Korea consumer – with

a little help from friends


http://r.macq.co/_OTg4NTk2

http://r.macq.co/_OTg4NTk2


30 April 2015 59

GGR Forecast

Despite investors’ concerns of slowing gambler traffic from China, the business situation in

Korea has been relatively stable, unlike Macau and Singapore. Based on combined gaming

revenue of Paradise and GKL, Korea’s foreigner-only casinos posted single-digit YoY decline

in 2Q-3Q14 (due to low hold rate), but recovered in 4Q14 with a 7% YoY growth. Also, we

forecast gaming revenue to remain positive at 4% YoY in 1Q15 and 11% in FY15.

Recently we have seen sluggish top-line performance from Paradise. We believe it is

attributable to the company’s relatively high dependence on junket games and slow marketing

activities toward China (due to stricter regulatory controls over Chinese gambling abroad). On

the other hand, GKL delivered solid performance in 4Q14 with a 13% YoY gaming revenue

growth and is forecast to enjoy 7% YoY growth in 1Q15 on relatively easier comps and

ongoing promotional activities.

These contradicting cases make us think that: (1) the weak top-line growth of Paradise could

be attributable to company-specific issues as GKL was not struggling; (2) the fact that players

continue to come to GKL on promotional activities indicates that demand is still intact; and (3)

the overall foreigner gaming market is still growing nicely despite Paradise’s lack of growth.

Fig 126 GKL and Paradise gaming revenue: Not as bad as regional peers (in fact, still growing nicely)

Fig 127 Korean gaming revenue: Faster growth anticipated (especially on IRs from FY17)


We have been arguing that with a growing wealthy population in Asia, demand for gaming will

start to be unlocked, especially amid the shortage in the supply of integrated resort style

gaming facilities. In particular, Korea is so far the only jurisdiction for casinos in Northeast

Asia. Also, NE Asia is on the verge of being developed as a new gambling destination in a

few years, which we believe should benefit even the existing operators with greater scalability

and more visitors. As such, we believe that even if there is a hiccup, the outlook for the

Korean gaming industry remains bright.

This is an important thesis as this implies that the story of Asian gaming is far from over yet.

That is, we will likely see growing number of gaming population in Asia, further boosted by the

introduction of integrated resorts. To approach this differently, given that Korea’s gaming

market amounts to only US$2.5bn, if Korea is able to capture just 1% of Macau revenue,

Korea could grow nearly 10% (as gamblers will want to gamble somewhere). The impact on

foreigner-only casinos is approximately 20% as the size is only US$1.3bn.

-10%

-5%

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Paradise

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0.0

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2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E

Kangwon Land

Other foreigner-only casinos

GKL

Paradise

Won

3-year CAGR = 11.3%(foreigner = 13.9%

Kangwon = 8.7%)

5-year CAGR = 6.2%(foreigner = 8.4%

Kangwon = 4.3%)

Paradise’s weak

performance is

company specific,

GKL continue to

deliver solid growth


30 April 2015 60

Largely foreigner-only gaming market driven by inbound Chinese

Nowadays, Chinese tourists can be easily found not only in downtown Seoul but also in many

of popular tourist spots in provincial areas in Korea. Duty-free shops in Seoul and Jeju Island

are fully packed with Chinese tourists, and buildings in central Seoul are rapidly being

converted into hotels.

We often hear from investors concerned about potential oversupply of tourism capacity in

Korea. However, we have not seen any meaningful signs of a slowdown in Chinese visitation

into Korea with the evidence of a 40% CAGR over the past three years (while overall

mainland Chinese traffic travelling abroad increased 18% during the period). As a snapshot,

Korea posted 42% YoY growth in Chinese visitation in 2014 (the second fastest after Japan

that enjoyed 83% growth on a cheaper currency and a low base). In the meantime, as of

2014, Korea is the third most popular overseas destination for Chinese travellers, after Hong

Kong and Macau (by definition, these two locations are categorised as ‘overseas’ given that

they are separate jurisdictions from the mainland).

Fig 128 Chinese visitor traffic into Korea Fig 129 Chinese travel to Jeju Island

Source: Korea Tourism Organisation (KTO), Macquarie Research, April 2015

Source: Jeju Tourism Organisation (JTO), Macquarie Research, April 2015

We think Chinese visits to Korea can grow structurally as Korea represents only 5.3% of total

Chinese outbound travellers in 2014, ie, 6.1 million Chinese people visited Korea (or 0.4% of

total Chinese population), whereas 47.2 million Chinese travelled to Hong Kong and 21.3

million to Macau. If Korea is able to secure just 1% of the Chinese visitors to Hong Kong and

Macau, Korea could enjoy 11% growth in Chinese visitation. Over the next three years, we

forecast Chinese visitor traffic in Korea to continue to grow solidly at a 30% CAGR.

Fig 130 Chinese visitor traffic abroad Fig 131 Chinese travel destination breakdown (2014)

Source: KTO, Macquarie Research, April 2015 Source: CEIC, Macquarie Research, April 2015

-20

0

20

40

60

0

5

10

15

20

25

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15E 16E 17E

% YoYVisitor (mn) Others

Japanese

Chinese

Chinese growth (RHS)

-20

0

20

40

60

80

100

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

08 09 10 11 12 13 14

Chinese visit to Jeju (LHS)

% YoY (RHS)

mn ppl % YoY

3-yr CAGR = +71%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

0

20

40

60

80

100

120

140

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Total Chinese outbound travellers (LHS)

Chinese tourist growth (RHS)

(mn)

3-yr CAGR +18%

HK40.5%

Macau18.2%

Korea5.3%

Thailand4.0%

Taiwan3.4%

Japan2.1%

Vietnam1.7%

Singapore1.5%

Malaysia1.4%

Philippines0.3%

Others21.7%


30 April 2015 61

Korea gaming: tale of Incheon vs. Jeju

Breaking down the GGR by regions, Jeju Island became the major growth engine, with GGR

nearly tripled, while the GGR from traditional Seoul region only increased by 76%, majorly

due to the visa-free policy implemented in 2002 and only 1-hr flight distance to Shanghai and

other major cities on the east coast of China. Jeju currently has 8 of the 16 total foreigners-

only casinos, with a total of ~180 tables and 200 slot machines.

Fig 132 Jeju’s GGR showed strong momentum

Fig 133 The GGR proportion of Jeju continue to increase during past 6 years

Source: KTO, Macquarie Research, April 2015 Source: CEIC, Macquarie Research, April 2015

From a scale angle, the Jeju casinos are smaller compared to the four located in the Seoul

region, which have 255 tables and 427 slot machines. But the advantage of Jeju is its first-

mover strength on the visa policy, which was implemented in 2002 and the local government

has more experience than other regions of Korea in dealing with surging Chinese visitors.

Furthermore, the good reputation of Jeju Island among Chinese tourists was built over a long

time and this would be an invisible barrier for other regions of Korea as it is hard to simply

copy.

Fig 134 Korea Visa policy changes during past years

Category Description

Allowed no-visa entry In May 2002, no-visa entry to Jeju island was allowed Eased qualifications and extended the validity of multiple-entry visa

In Aug 2010, qualifications for multiple-entry visa were expanded to the middle income class; A three-year multiple-entry visa is issued to those who have visited Korea at least four times over the past two years or five times total

Further Eased qualifications of multiple-entry visa

Since Sep 2014, the spouse, minor children of original multi-entry visa holders will enjoy the same policy; Beijing, Shanghai citizens and the students from "Project 211" universities are eligible for multi-entry visa application

Source: Public news, Macquarie Research, April 2015

0

100

200

300

400

500

600

700

800

900

1000

Seoul Jeju Busan Incheon Others

2008 2009 2010 2011 2012 2013

US$ mn

76% total growth

184% accu growth

79% accu growth

72% 72% 71% 71% 68% 65%

11% 10% 10% 9% 12% 16%

12% 13% 13% 12% 13% 11%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2008 2009 2010 2011 2012 2013

Seoul Jeju Busan Incheon Others


30 April 2015 62

Fig 135 Four foreigner-only casinos located in Seoul region

Fig 136 Eight foreigner-only casinos located on Jeju Island

Source: openstreetmap.com, Korea Casino Association, Macquarie Research, April 2015

Source: openstreetmap.com, Korea Casino Association, Macquarie Research, April 2015

Based on the experience from Macau and Singapore, mega-scale casino resorts, with initial

investments around US$ 1bn, became more popular as more amenity options were provided.

Even the capex requirement is heavy to build one such resort, and Korean operators were

usually more conservative on this cash burning competition, we observe they are finally

starting to move their chess pieces after the successful evidence from South Asia.

Three major projects in Korea were in pipeline, named Paradise City, Lippo-Caesars and

Resort World Jeju, respectively. All three of these projects are targeting to provide world-class

services as Macau and Singapore peers have, with over 100 tables, more than 600 rooms

and more entertaining functions together in one single complex. The capex will be around

US$ 1bn for each.

Where to build these new IRs is a very interesting choice. Two will be located in Incheon,

near Seoul, and the third will be on Jeju Island. We think as the two most important and

promising regions generating large amount of GGR, the Korea government would be carefully

balance the benefits between these two regions. As the fast development pace of Jeju Island

has proved the feasibility of previous policies, Korea government launched a series of new

policies to set up the new economy zone on Yeongjong Island (in Incheon region) and

encouraged companies to introduce more service and entertaining complexes there.

Fig 137 Major IRs in pipeline over next few years

Location Operator Project Phase Planned opening

Planned capex (US$ bn) Rooms

GFA (1,000 sqm) Tables Slots Non-gaming functions

Incheon Paradise/Sega Sammy

Paradise City

I 2017 0.9 717 185 130 400 Retail, entertainment, etc.

II TBD 0.9 500 243 TBD TBD Retail, spa, etc. Caesars/Lippo/OUE Lippo-

Caesars I 2018 0.8 560 150 130 400 Convention,

entertainment, retail, spa, etc

II TBD 1.5 TBD TBD TBD TBD TBD Jeju Genting

Singapore/Landing International

Resort World Jeju

I 2018 1 2800 total 797 in total 240 500 Theme park, villa, condominium, retail, etc several TBD 1.4 TBD TBD


Walkerhill; Gangnam; Hilton

Incheon

Paradise Jeju; NSD Jeju; Shilla; Royal Palace;

Lotte Hotel; Vegas Casino; Hyatt Hotel; golden breach


30 April 2015 63

Japan Status of Legislation

Resubmission before June 24th

Legislation for the promotion of integrated resorts was tabled in Dec 2014 for Diet

parliamentary debate but the debate did not occur. Note that this legislation would require

an implementation bill to be passed within 1 year and form the main framework for any

future casino plans.

We understand that the cross-party integrated resorts promotion group planned to wait to

resubmit the promotion bill until after April local elections are completed. With elections

now done the submission into the schedule for debate could occur any time. However

recent press reports suggest this could occur via transport committee which suggests

problematic support for the bill. In reality the LDP/Government has other legislation it wants

to pass before the parliament session ends on June 24th in priority over the integrated

resorts legislation. The LDP recent political woes including inappropriate receipt of

donations has reduced political power of PM Abe and his control of the LDP (which can

control both houses of parliament in collation with New Komeito Party but because it’s a

collation politics can rule logical activities).

In April 2015 the New Komeito Party said it would allow the LDP to submit the integrated

resorts bill into the parliament for debate.

50:50 chance of passing by end June but ….

We think the probability of the legislation being submitted and passing is at best 50:50. If

the legislation does not pass then we think any progress is unlikely for

resubmission/approval and hence will kill the project for now. Note that the opposition DPJ

originally proposed the integrated resort legislation over 10yrs ago when it was in power

but was unable to get approval (let alone debate in the parliament which the LDP almost

has done). Failure to pass the legislation could result in the disbandment of the

administrators set up to drive the legislation which could end the chances for the

legislation.

Our recent industry checks suggested that if the integrated resorts promotion bill is passed

the implementation bill will be submitted and passed by Dec 2015. If correct this would

enable some speeding up of the process but we think a casino opening before 2020 could

be difficult.

4.8% of population are problem gamblers is the real political problem

We believe that a Aug 2014 report of 5.4m problem gamblers (4.8% of the population,

ahead of overseas averages of 1%-2%) in Japan has also increased opposition to the

integrated resorts plans and caused tightening of regulation in the Pashislot industry.

As a result the promotion legislation was modified to ensure that the final legislation

considered measures to limit entrance to those who should be prohibited (problem

gamblers, criminals, children etc). Some press reported this as restrictions on all Japanese

when in fact it was only around logical entrance restrictions rather than a full local ban.

Hence we still think any Casino in Japan will be driven by local attendance and not VIP or

Chinese gambling. Based on recent industry contacts we understand that Junkets will not

be allowed in Japan (illegal under current or proposed legislation) which will severely

restrict the attractiveness of the Japan market to VIP players in the region. In addition we

understand the implementation legislation restricts casino floor space to being below 10%

or less of total floor space.

We believe this problem gambling problem driven by the Pachinko industry needs to be

addressed for the integrated resorts to proceed. We understand the Cabinet might propose

funding problem gambling support network until the resorts are open.

Promotion bill

resubmitted after

April local elections

are completed

Problem gamblers

are 4.8% of the

population, ahead of

overseas averages

of 1%-2%

David Gibson, CFA [email protected]

+81 3 3512 7880

Recent publications Sept 2014: Japan Casinos-

pachislot v casino Nov 2014: Japan Casinos

delayed again to June 2015 Feb 2015: Konami-sns growth

but native hard

http://www.intergameonline.com/casino/news/13258/japan-task-force-to-disband

http://www.intergameonline.com/casino/news/13258/japan-task-force-to-disband

http://blogs.wsj.com/japanrealtime/2014/08/22/five-million-japanese-have-gambling-problem-says-ministry-study/

http://mainichi.jp/english/english/perspectives/news/20140910p2a00m0na011000c.html

http://r.macq.co/_OTMwNTMw

http://www.reuters.com/article/2014/10/16/us-japan-casinos-idUSKCN0I509U20141016



http://r.macq.co/_OTQ5OTI0

http://r.macq.co/_OTQ5OTI0

http://r.macq.co/_OTcwMTM1

http://r.macq.co/_OTcwMTM1


30 April 2015 64

No Tokyo, Osaka/Yokohama to the front

We understand a draft implementation legislation makes it clear that local municipalities

decide the winning bidders for the integrated reports. That local municipality then seeks

federal approval for the integrated resort. We understand that longer term the government

is in favour of up to 10 resorts but would allow up to 4 initially (2 larger city, 2 smaller)

before allowing a wider approval process. Local initial approval of a project means local

inclusion is extremely important and hence complete foreign ownership is unlikely although

it’s possible the casino is run 100% by a foreign operator given no Japanese companies

have experience.

The Governor of Tokyo has stated he is not in favour of an integrated resort, preferring to

focus on the 2020 Olympics. As a result cities like Osaka (2hr 30min by train from Tokyo)

and Yokohama (less than 30mins by train from Tokyo) have expressed their eagerness to

have an integrated resort given they have access to land. In fact around 15 municipalities

have expressed interested in having an integrated resort. We think that getting a casino

open by 2020 will be difficult given the delay in the legislation and the rising construction

costs (driven by Olympics demand). We estimate that Osaka is the most likely first location

given the local support, it won’t impact Olympics construction, reasonable proximity to

transport and large local population (20m in region).

The governor of Osaka and the mayor have expressed support for an integrated resort

saying “We have to win this competition at any cost, even if it means dragging down our

rivals”. They proposed a location that was originally marked in 2001 for the failed bid for

the for the 2008 summer Olympics. The site – Yumeshima is a 390 hectare property of

reclaimed land under construction that is less than 30mins from the city but would be 1hr

from the Kansai airport. In addition the city of Osaka has debt of US$40bn while Osaka

Prefecture has about US$53bn deficit which could act as incentives to have an integrated

resort.

LVS, MGM, Wynn, Melco Crown and Caesar’s have all expressed interest in setting up a

US$5bn+ integrated resort in Osaka.

Why Everyone Wants Japan to Open

The Japan pachinko/pachislot industry gross gambling is US$23.6bn pa which compares to

Macau at US$44bn and all of the US at $65bn (Las Vegas US$6bn). Because of this large

current gambling market in Japan we believe any integrated resort would be aimed at the

domestic market with a small component for VIP or foreigners.

Fig 138 Japan is the largest GGR market today (US$23.6bn)


65.0

43.9

23.6

5.9 4.5 2.7 1.5 1.4 1.3 0.30

10

20

30

40

50

60

70

GGR (US$bn)

Longer term the

government is in

favour of up to 10

resorts but would

allow 4 initially (2

larger city, 2

smaller)

Japan gross

gambling is

US$157bn pa which

compares to Macau

at US$44bn and all

of the US at $65bn

The Osaka mayor -

“We have to win this

competition at any

cost, even if it means

dragging down our

rivals”.

http://ajw.asahi.com/article/behind_news/social_affairs/AJ201411140005

http://r.macq.co/_OTQzNDYz


30 April 2015 65

While Japan’s population of 127m is declining, visitors in 2014 reached a record level of over

13m (+29% YoY) with a government target of 20m by the time of the 2020 Olympics. The

visitor arrivals rate has accelerated because of reduced visa restrictions from China/Korea, in

particular. In Tokyo alone the city has over 18m population (35m metropolis) but has over

190m visitors pa because it is the center of commerce/politics/trade and tourism.

Due to the declining population and deflation spending on leisure activities in Japan has been

declining since 1996. Similarly gross gambling in the pachinko/pachislot market has also

been declining but particularly from 2007 onwards due to tighter regulation (reduction in

gambling element). While the Japan GGR is around US$23.6bn in 2013, it was close to

US$247bn prior to the regulations that came into effect in 2007 and hence we think any

integrated resorts could potentially expand the market.

Fig 139 Japan Leisure spending has been falling Fig 140 With 29% on Pachinko/Pachislot

Source: Japan Productivity Center, March 2015 Source: Japan Productivity Center, March 2015

In 2013 Pachinko/Pachislot spending was approximately ¥18.8Tn in spending or 29% of total

consumer leisure spending. Games/Gambling/Eating Out represented the largest part of

spending with 37% which included in gambling the spending of approximately ¥3Tn on horse

racing, ¥1Tn on boat racing, ¥1 on bike racing and ¥1Tn on lottery.

During the last two decades the gross gambling revenues for pachinko/pachislot have

declined and since 2010 been relatively table. The number of players however has continued

to decline as users find alternative forms of entertainment like mobile phone games.

Fig 141 Pachinko/Pachislot GGR recently stable

Fig 142 While the number of regular players has continued to decline

Source: Japan Productivity Center, Macquarie Research, March 2015 Source: Japan Productivity Center, Macquarie Research, March 2015

-

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

¥Tn

Total Leisure Market Pachinko/Pachislot

Pachinko/Pachislot

29%

Games/Gambling/Eating Out

37%

Hobby/Creation

13%

Signtseeing Excersion

15%

Sports6%

-

5.0

10.0

15.0

20.0

25.0

30.0

35.0

¥T

n

0

5

10

15

20

25

30

Pla

ye

rs (m

)


30 April 2015 66

As a result the number of halls has fallen in the last 10 years by 26% to 11,893 according to

the National Police Agency who oversees the industry. Pachinko halls represent over 90% of

the halls in Japan.

Fig 143 Pachinko/Pachislot halls in decline Fig 144 Halls payout 85% to consumers (CY2013)

Source: NPA, March 2015 Source: Japan Productivity Center, Macquarie Research, March 2015

Approximately 85% of the GGR for pachinko/pachislot is paid back to consumers. Japan

legislation stops the cashing out of winnings for cash directly but this must be done off-

premises from the hall.

As a reminder Pachinko is where steel balls are released into a vertical pinball type screen

where users adjust what speed/angle how the balls are released so as to try and get them

into a particular funnel exit at the bottom. Pachislot machines are very similar to existing

slot machines in the US where a rotating drum spins and a player wins based on three-of-

a-kind matching across a window on the drums.

Potential Winners from Casino legislation passing (negative if it doesn’t)

Development/Land: Fuji TV, TOC, Tokyo Tatemono, IHI Corp, Mitsui Fudosan, Tokyo

Tokeiba, Tokyo Gas, Oriental Land

Casino Equipment: Konami, Japan Cash Machine, Glory, IGT, Scientific Games

Entertainment, Aristocrat, Ainsworth

International Partners: Genting Singapore, Las Vegas Sands, Wynn Resorts, MGM

Resorts, Crown

Uncertain impact

Entertainment Facilities: Capcom, Square Enix, Sega Sammy, Namco Bandai, Round One

Pachinko: Sankyo, Sega Sammy, Fields,

International casinos: Wynn Macau (1128.HK), Sands China (1928.HK), Genting HK,

Genting Singapore, Melco Crown (MPEL.US), Grand Korea Leisure, Paradise.

Note we do not include Universal Entertainment in the lists because of recent

regulatory/legal issues in the Philippines and the US.

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

Ha

lls

Pachinko Pachislot

18.8 Returned to Players,

16.2Tn, 85.1%

Gross Profit, 2.8Tn, 14.9%

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

GGR GGR Break-up Machine Spending

¥Tn

Pachinko Machines Pachislot Machines

1.08

Approximately 85%

of the GGR for

pachinko/pachislot

is paid back to

consumers


30 April 2015 67

Cambodia A fast growing market gaining outsiders’ interests

Locals are technically ‘not encouraged’ as opposed to banned from casino gaming in

Cambodia. Unlike in jurisdictions where gaming is banned and patrons are thoroughly

screened prior to entering, Cambodian authorities and casino operators only conduct random

checks on gambling patrons.

Due to the lack of an official gaming regulatory body (casino gaming is administered under

the Ministry of Economy and Finance), there is no precise accounting of the size of the

Cambodian gaming market. Based on taxes paid by operators Naga (NagaWorld in Phnom

Penh) and Donaco (recently acquired the Star Vegas casino on the border of Thailand), we

estimate Cambodia’s casino gaming industry is roughly a US$1.3bn GGR market in 2014.

According to our checks, there are at least 50 smaller casinos, most of them located in the

northwest and southeast border regions, drawing visitors from Thailand (gambling illegal) and

Vietnam (gambling restricted). On the map below, we mark 20 known casinos, whose location

information is available on internet, on the map together with Naga World in Phnom Penh.

Fig 145 Naga monopolizes the Phnom Penh market while clusters of border casinos draw visitors from Vietnam and Thailand

Source: Company data, openstreetmap.org, Macquarie Research, April 2015

Within a 2-hour flying radius, Cambodia is accessible with direct flights from most major cities

across Southeast Asia and some parts of Southern China. However, Cambodia also faces

strong competition from regional rivals, such as Philippines and Vietnam. There are relative

long list of IRs under development or in pipeline in these regions, while Cambodia only has

one (Naga2) in the pipeline, which is expected to be fully finished in 2017.

9

7

4

Naga

Cambodia is a

US$1.3bn GGR

market, Naga

commands 25%

market share


30 April 2015 68

Fig 146 Cambodia competes with regional gaming hubs for Chinese gamblers

Source: openstreetmap.org, Macquarie Research, April 2015

Estimation of Cambodia GGR scale is difficult, as there is no official data available, as well as

large proportion of small casinos near the border. We used Naga’s actual gaming tax to GGR

ratio and Cambodia total gaming tax estimation to backward calculate the Cambodia gaming

market size in 2014 to be around US$1.3 billion of GGR. The five-year CAGR until 2014 was

28% and we estimate the market can continue to grow at double digits in the next several

years, with the opening of Naga2 and continuing infrastructure improvement to accommodate

more incoming tourists.

Fig 147 Naga's GGR has been growing at 28% CAGR since 2009

Fig 148 Cambodia’s gaming market is as big as Korea’s, and Naga controls ~25% market share based on taxes paid


112141

211

261

310

381

0%

10%

20%

30%

40%

50%

60%

0

50

100

150

200

250

300

350

400

450

2009 2010 2011 2012 2013 2014

Naga GGR YoY growth

US$m YoY growth

5.9

4.5

2.7

1.5 1.4 1.3

0.3

0

1

2

3

4

5

6

7

Singapore Australia Philippines Malaysia Korea Cambodia Vietnam

GGR (US$bn) - 2014


30 April 2015 69

Tourism: may be boosted further by infrastructure improvement

Cambodia accepted 4.5mn international tourists in 2014, with a five-year CAGR of 12.4%.

The composition of Cambodia inbound tourist is very diversified, with 20% Vietnamese, 12%

Chinese and 10% Laotian.

Fig 149 Cambodia inbound tourists volume Fig 150 Inbound visitation breakdown

Source: MoT, Macquarie Research, April 2015 Source: MoT, Macquarie Research, April 2015

The continuous rising of hotel occupancy rate also indicates the popularity of Cambodia, and

the average length of stay remaining stable at around the 7-day level. Around 50% of tourists

entered Cambodia through airway. Cambodia government realized the current infrastructure

capacity has constrained the tourists’ inflow volume, and a series of improvement were

planned.

The airports expansion projects for Siem Reap and Phnom Penh will be finished in 2015 and

2016, respectively. The total investment will be around US$1bn. The majority of tourists

currently enter the country through Siem Reap Airport, given its proximity to the country’s top

tourist attraction, Angkor Wat, whereas capital city Phnom Penh receives relatively fewer

passengers.

Fig 151 Average length of stay continue to rise with hotel occupancy rate

Fig 152 Half of the visitors arrive by air

Source: MoT, Macquarie Research, April 2015 Source: MoT, Macquarie Research, April 2015

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

International tourism YoY

1,000 people

21% 21% 20% 20%

9% 9% 11% 12%4% 7% 10% 10%12%

11%10% 9%4%

6% 5% 6%

50% 45% 43% 42%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2011 2012 2013 2014

Vietnam China Lao Korea Thailand Others

30%

35%

40%

45%

50%

55%

60%

65%

70%

75%

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

Average Length of Stay Hotels Occupancy (RHS)

Days

24% 22% 20% 20% 20%

28% 29%28% 28% 30%

48% 49% 52% 52% 50%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012 2013 2014

Phnom Penh Int'l Airport (PNH) Siem Reap Int'l Airport (REP) Land


30 April 2015 70

Meanwhile the Cambodian government is also implementing a series of transportation

infrastructure improvements, including over 1,000km national road system extension and

renovation. If the plan goes well, all projects will be completed before 2018. Together with the

airports expansion, we believe these will greatly increase the capacity of local tourism,

providing Cambodia a solid base for gaming industry growth in future.

Fig 153 Cambodia Southern Economy Corridor plan

Fig 154 Major national roads extension and renovation plan

Source: MoPWT, Macquarie Research, April 2015 Source: MoPWT, Macquarie Research, April 2015


30 April 2015 71

Gaming tax as low as 1-2%, corporate tax exempted

Casinos in Cambodia are extremely profitable, with little gaming tax ,and exempted from the

country’s 20% corporate tax. Naga, for example, pays a fixed gaming tax (called ‘Monthly

Gaming Obligation’) that is equivalent of just 1-2% of GGR. The current tax arrangement set

for 12.5% annual adjustment through 2018.

Cambodia’s Ministry of Economy and Finance first granted NagaCorp such tax benefit in

2000, but it was once renewed for 10 years in 2008. By 2018, the government will review and

decide whether there will be any changes to the current tax regime.

Cambodia will host the next general election in 2018 with the incumbent leader Hun Sen, who

has been in power for 30 years (since 1985), being challenged by the opposition party. This

raises uncertainties whether under the scenario of a new leadership, gaming obligation

policies and corporate tax exemptions will be kept as is.

Fig 155 Naga’s ‘gaming obligation’ is <2% of its GGR

Fig 156 Making Cambodia the lowest gaming and corporate tax region across Asian gaming jurisdictions

Source: Company data, Macquarie Research, April 2015 Source: Innovation Group, Macquarie Research, April 2015

Fig 157 Naga earns one of the highest EBITDA margin across Asian peers…

Fig 158 …and the highest bottom-line profitability by a large margin

Source: Innovation Group, Macquarie Research, April 2015 Source: Company data, Macquarie Research, April 2015

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

2009 2010 2011 2012 2013 2014

Taxes paid Tax rate

Gaming taxes paid (US$m) Tax rate (% of GGR)

43%

24%

42%

22%24%

44%

26%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

FY14A EBITDA margin

34%

18%20%

18%

15%

18%

15%

0%

5%

10%

15%

20%

25%

30%

35%

40%

FY14A net profit margin

Change in the

current low tax

regime would affect

casino operators’

profitability


30 April 2015 72

Valuation

NagaCorp (3918.HK, not rated) is the only listed pure-play in Cambodia. The company

generated GGR of US$381m and EBITDA of $176m in FY14. Based on forward consensus

EBITDA (growth of 15-16% FY14-16E) and using fully diluted number of shares, Naga is

trading on approximately 12x forward EBITDA.

Fig 159 Naga trading on 12x forward EV/EBITDA Fig 160 Naga’s consensus EBITDA revision history


Australia listed casino operator Donaco (DNA AU, not rated), which operates casinos in

northern Vietnam, in January 2015 acquired Star Vegas casino in the Thailand-Cambodia

border city of Poipet for US$360m, based on 6x FY14 EBITDA.

0.0

5.0

10.0

15.0

20.0

25.0

2009 2010 2011 2012 2013 2014 2015


+1 σ

Mean

-1 σ0.0

50.0

100.0

150.0

200.0

250.0

2009 2010 2011 2012 2013 2014 2015

2009 2010 2011 2012

2013 2014 2015

Forward Consensus EBITDA(US$ mn)


30 April 2015 73

Vietnam A US$300m GGR market

Gambling in Vietnam is illegal for the locals, but foreigners, including those with foreign

passports, are welcomed. Some estimates most of Vietnam’s top 5% richest hold foreign

passports. Vietnam currently has 6 casinos with table games, most of which located in the

northern regions, targeting the Chinese gamblers. There are also numerous slot machine

halls located in five-star hotels across the country.

Due to the high opaqueness of Vietnam’s market, we cannot accurately evaluate its scale.

According to Donaco, Vietnam’s market size as measured by GGR is approximately

US$300m, with about half of that coming from the six table game casinos.

Fig 161 Vietnam has 6 operational casinos with table games

Source: Company data, openstreetmap.org, Macquarie Research, April 2015

1

234

5

6

1

2

3

4

5

6

Casino Location Tables

Lao Cai

International

Hotel

Lao Cai

Province8

Phoenix

International

Club

Bac Ninh

Province6

Royal

International

Club & Li Lai

International

Hotel

Ha Long Bay

& Mong Cai 26

Do Son

Casino

Hai Phong

City

17

Crowne Plaza Danang City 20

Grand Ho

Tram

Ba Ria-Vung

Tau

Province

90

1

1 South Hoi

An IRs

Hoi An City 90

2 Grand Ho

Tram Phase II

Ba Ria-Vung

Tau

Province

90

2Projects Location Tables


30 April 2015 74

More uncertainties from politics

There are currently 2 projects are under construction in Vietnam, which are estimated to add

180 tables before 2018. Meanwhile, Chow Tai Fook, a HK company whose business involves

jewellery sales and property development has showed strong interest in investing in Vietnam

gaming market and was said to be ready to inject US$ 4bn in Sun City project in Vietnam,

according to Bloomberg. But the location of such project has not been decided.

Although more projects may come in future and Vietnam’s government is implementing a

series of infrastructure improvement policies, we think the government’s conservatism on

opening casino to locals and continuous territory conflicts with China are the major

constraints to Vietnam’s gaming market, which could not be easily eliminated.

During past 3 years, several global gaming giants have quit Vietnam, including MGM, Genting

and Sands. MGM announced its withdrawal decision in March 2013 from project Ho Tram.

The public believe that was due to Article No.7 of the draft decree approval was long time

postponed. (The Article No. 7 of the draft decree on casino management, which has been

opened for public opinion, says that there should be 2,000 game machines and 180 tables

maximum at every casino. We believe the logic behind this is MGM took this long-time

postponement as a sign that Vietnam government would not release the local citizens’

gaming ban in short term, causing their giving up in final. Similarly, Genting Group withdrew

from a casino project in Hoi An ancient town October 2012. According to VietNamNet.vn,

“The President of Sands Group once stated that if the government of Vietnam wants Sands to

pour its huge capital to Vietnam, it will have to allow its 90 million people to gamble.”

The second uncertainty is the continuous territory conflicts with China, which has caused the

growth of Chinese visitors slowing down to only 3% in 2014 from over 30% in 2013. After the

anti-Chinese chaos happened in May 2014, the Chinese government released a warning to

those who wanted to visit Vietnam and significant number of travel agencies cancelled their

itineraries. Even after Vietnam’s government tried to rebuild the confidence among Chinese

tourists by taking several actions on enhancing social safety, we do not expect such conflict

will be solved quickly, as the conflicts between Vietnam and China have very complex and

long historical background.

Fig 162 Grand Ho Tram Strip

Fig 163 Chinese visitor growth halted in 2014 due to territorial disputes

Source: Company data, Macquarie Research, April 2015 Source: VNT, Macquarie Research, April 2015

0%

10%

20%

30%

40%

50%

60%

70%

80%

0

500

1,000

1,500

2,000

2,500

2009 2010 2011 2012 2013 2014

Vietnam YoY

1,000 people

Several global

gaming giants are

planning

to/contemplating on

build integrated

resorts in Vietnam


30 April 2015 75

Vladivostok They too want a piece of the Chinese outbound pie

The Integrated Entertainment Zone (IEZ), located in Vladivostok, is one of the four gaming

zones officially allowed by the Russian Government (the other three are located in

Kaliningrad, Sea of Azov and Altai). The Primorye Government intended to build the IEZ as a

zone having multiple integrated resorts and focusing on attracting foreign tourists from greater

Asia, with a particular focus on inbound tourists from China.

Fig 164 The four gaming zones in Russia


The IEZ is located in Artem, around 50 km from Vladivostok which was the famous navy base

of the Soviet Union during the Cold War and currently Russia’s gateway to Far East. The

distance from IEZ to Vladivostok airport is around 20 km. The 2-hour flying radius region

covers Northeast China, South Korea and Major parts of Japan.

Fig 165 Vladivostok’s location in Northern Asia

Fig 166 IEZ located between Vladivostok international airport and city

Source: openstreetmap.org, Macquarie Research, April 2015 Source: openstreetmap.org, Macquarie Research, April 2015

IEZ

50 km

20 km

Vladivostok International Airport


30 April 2015 76

Fig 167 Direct flight access from major north Asia cities

City

Country

Population

Flight time

# of Flight (Weekly)

Harbin China 10,635,791 1:10 2 Dalian China 6,170,000 1:45 5 Seoul South Korea 10,738,269 1:50 19 Busan South Korea 3,622,140 2:00 2 Tokyo Japan 13,162,000 2:10 3 Beijing China 19,600,000 2:30 2

Source: Ctrip.com, Macquarie Research, April 2015

According to the blueprint of IEZ development issued by the Primorsky Territory government,

the general construction process will include two phases. After completion, the IEZ will

feature hotels, guest villas, shopping and exhibition centres, casinos, a water park, an

amusement park, a yacht club, a pier, restaurants, cafes, beaches and a golf course. In the

Phase I, Sites 9 to11 and 16 to21 will be constructed, which are designated for casino

integrated resorts. The Phase II construction will include sites 2, 4 to 7, and 12 to15.

Currently, the Summit Ascent Phase I casino project for Lot 9 is in the final step of

construction and decoration. The Lot 10 of Summit Ascent and Lot 22 of Naga Corp are both

in the investment plan discussion phase and are expected to break ground soon.

Fig 168 IEZ development map


Lot 9: Summit – Late 2014 opening

Lot 10: Summit – Mid 2018 opening

Lot 20-25: Naga – 2018 opening


30 April 2015 77

Fig 169 The major projects pipeline in IEZ

Site Description of Land Use Capex (US$mn) Number of Rooms Total space (Ha) Total space (Sqm)

1 Service zone - - 2 - 2 3-star hotel 39 130 6 14,500 3 Administrative Center 26 - 2 13,000 4 Convention Center 188 - 14 97,500 5 4-star hotel 59 180 4 16,000 6 4-star hotel 106 180 8 30,500 7 5-star hotel and casino 156 200 13 34,500 8 Service zone - - 7 - 9 Hotel complex and casino 29 50 9 1,600 10 4-star hotel and casino 133 240 15 34,000 11 5-star hotel and casino 215 400 16 55,000 12 4-star hotel 58 180 3 16,000 13 Guest Villas 24 - 19 - 14 5-star hotel and casino 76 120 6 29,000 15 3-star hotel and casino 76 130 9 28,000 16 5-star hotel and casino 55 100 1 13,000 17 4-star hotel and casino 102 200 4 29,500 18 3-star hotel and casino 37 100 7 13,000 19 4-star hotel and casino 55 100 3 13,000 20 4-star hotel and casino 116 180 5 29,500 21 5-star hotel and casino 152 250 3 38,500 22 3-star hotel and waterworld 44 180 12 16,000 23 Electric Cars Parking Area - - 2 - 24 Recreation park - - 20 - 25 Yacht-club 17 - 2 4,000 Total 1,761 2,920 193 526,100


Fig 170 The 3 casinos projects in IEZ currently

Project Name

Planned finish time

Site Area (Sqm)

Capex (US$ mn)

Gaming Tables

Slots

Hotel Rooms

Summit Ascent Lot 9 (Phase 1)

Sep-14 90,245 182 80 800 119

Summit Ascent Lot 10 (Phase 2)

Mid-2018 154,400 500 170 500 500

Nagaworld Vladivostok 2018 210,000 350 100 1000 1000 Total 454,645 1,032 350 2,300 1,619


Higher EBITDA margin brought by low tax rate and labour cost

We believe the EBITDA margin of gaming operators in IEZ will be much higher than their

peers in other Asia regions, due to the low gaming tax rate and labour cost. In IEZ, the

amount of gaming tax is levied by a fixed monthly payment. The monthly payment per table

and per slot are RUB125,000 and RUB7,500. Since the sanction imposed to Russia due to

Ukraine crisis has caused the RUB to depreciate over 50% over the last 6 month, the

effective tax per table and slot translate to US$ are only US$2,225 and US$ 35, indicating a

tax rate of less than 1%. This is much less than the tax level of other Asian markets, which

are between 17-40%.

The average monthly salary in Vladivostok is around US$800 in 2012. Even considering the

inflation effect and wage increase, it will be less than US$1,000, compared with ~US$ 2,000

in Macau.

Low tax and costs

will allow casino

operators to earn

above regional peer

profits


30 April 2015 78

Fig 171 27-37% EBITDA margin for VIP

Fig 172 Mass is even more profitable at 64-70% EBITDA margin


Fig 173 Macau’s VIP margin teens at best Fig 174 While mass can be higher, up to 40%


$ 100 GGR

~$ 1 Gaming Tax ~$ 60 Commission ~$ 39 Cross Profit

$ 3-12 Operating

Expense~$ 27-37 EBITDA

$ 100 GGR

~$ 2-3 Gaming Tax~$ 89-91 Cross

Profit

$ 21-25 Operating


~$ 8 GGR Rebate

$ 100 GGR

$ 39 Gaming Tax ~$ 44 Commission ~$ 17 Cross Profit

$ 3-12 Operating


$ 100 GGR

$ 39 Gaming Tax $ 61 Cross Profit

~$ 21-25

Operating Expense~$ 36-40 EBITDA


30 April 2015 79

HONG KONG

3918 HK Not rated

Stock price as of 24/04/2015 HK$ 5.78

GICS sector Casinos & Gaming

Market cap (diluted shares) US$m 2,870

Avg Value Traded (3m) US$m 3.2

12m high/low US$ 7.48/4.66

Cons. PER FY16E (diluted) x 16.5x

Cons. EV/EBITDA FY16E

(diluted)

x 11.4x

Historical financials

YE Dec (US$m) 2012 2013 2014

Revenue 279 345 405

% growth 25% 24% 17%

EBITDA 139 157 176

% growth 26% 13% 2%

EBITDA Margin 50% 46% 43%

Net profit 113 140 136

% growth 23% 24% -3%

Source: Company data, FactSet,April 2015

Share Price Driver

Thematic

Growth

Value

Event


Naga trading on 11.9x forward EBITDA vs. historical average of 10.4x


Analyst(s) Jamie Zhou, CFA +852 3922 1147 [email protected]

30 April 2015 Macquarie Capital Securities Limited

MacVisit: NagaCorp Eating Macau’s lunch Monopolizing Cambodia’s high-end gaming

We recently visited NagaWorld in Phnom Penh, the only casino in Cambodia’s

capital with a government-granted monopoly (within a 200km radius) until 2065.

We also went to experience the closest casino resort, Thansur Bokor Highland

(3.5 hours south of PP). Our experience suggests that Naga faces no meaningful

competition, and is the only premium integrated resort operator in Cambodia,

capturing strong growth both domestic and inbound. And unlike Donaco’s (DNA

AU, not rated) recently acquired Star Vegas Casino in Poipet that largely caters

to Thai nationals across the border, two-thirds of Naga’s FY14 $382m GGR is

from locals.

Adding 2 more Macau junkets to bring in Chinese gamblers

Naga’s revenue grew at a 28% CAGR over the past five years, while net profits

increased more than 400% to US$136m in FY14. More recently, Naga has been

introducing foreign junkets (4 Southeast Asian, 1 Macau) to its new VIP rooms

and contributed 41% VIP YoY growth in FY14 and 101% in 1Q15. The company

has several catalysts to further drive inbound gamblers, particularly those from

China that might be shying away from Macau: 1) adding two more Macau-based

junkets this year; 2) CityWalk mall opening in 1H2016 and Naga 2 opening in

1H2017 will increase current room count from 713 to 1,732; 3) direct flights

starting from mainland China, with two A320s (subject to approval) along with

two existing Gulfstreams, and; 4) luring junkets to bring customers to Naga, with

70% GGR sharing scheme; this is equivalent to ~2.0% of VIP rolling compared

with just 1.25% in Macau.

Trading on diluted 11.4x FY16E EV/EIBTDA, 16.5x PER

Naga2 project’s $369m capex has been financed by the listco’s controlling

shareholder, Dr. Chen, who agreed in 2011 to sell the new property back to the

listco at HK$1.84/share upon completion in 2016. The market must take into

account the eventual dilution of 69% new shares on the current 2.28m shares

outstanding. Bloomberg consensus indicates EBITDA and net profit CAGRs of

15% and 13% FY14 through FY17E. This implies the stock, on a fully diluted

basis, is trading on 11.4x FY16 EBITDA, vs. Macau at 14x, Asian regional

gaming peers at 7-12x and Donaco’s acquisition of Star Vegas at 6x EBITDA.

Highest margin across Asian gaming; Key risks: regulatory

Naga is the most profitable regional casino operator with 34% net profit margin

vs. rest of Asia at 15-20%. A special gaming tax treatment allows Naga to pay

effectively below 2% gaming tax and 0% corporate tax through 2018.

Continuation of the special tax arrangement will be subject to the outcome of the

2018 election and could negatively impact Naga’s financial performance.

Foreigners investing in jurisdictions such as Cambodia and Russia (where Naga

is building a resort in Vladivostok) could face political risks. There are also

concerns regarding emerging regional competition from aggressive capacity

expansion across Asia, particularly in Macau and Manila, where multiple

integrated resorts are being built in clusters. Lastly, key shareholder Dr. Chen

has a history of sell-downs (separately at HK$3.04 in Apr 2012 and $4.43 in Nov

2012) to fund the Naga2 construction and to improve the liquidity. Company also

sold 200m shares through top-up placement in March 2013 at $6.05/sh.

.

0.0

5.0

10.0

15.0

20.0

25.0

2009 2010 2011 2012 2013 2014 2015


+1 σ

Mean

-1 σ

http://www.hkexnews.hk/listedco/listconews/SEHK/2011/0613/LTN20110613592.pdf


30 April 2015 80

Ownership

History and corporate governance

ChenLa Foundation 42% (post dilution 65%)

NagaCorp Ltd. Is the largest hotel, gaming and leisure

operator in Cambodia and has been listed on The HKEX

since 2006. The flagship, NagaWorld, is Phnom Penh’s only

integrated hotel-casino entertainment complex and enjoys a

70-year casino licence that will run till 2065, as well as a 41-

year monopoly within a 200km radius of Phnom Penh that

expires in 2035.

Founder Dr. Chen sell-downs: 214m shares at $3.04 (Apr

2012), 90m shares at $4.43 (Nov 2012). Top up placement

200m shares at $6.05 (Mar 2013).

Balance sheet data and refinancing (2014)

Management and Directors background

Net cash: HK$178m (vs HK$252m as of FY13)

Inventory days: 3 days (vs 4 days as of FY13)

AR days: 10 days (vs 9 days as of FY13)

AP days: 5 days (vs 6 days as of FY13)

Cash conversion days: 8 days (vs 7 days as of FY13)

Timothy Patrick McNally, Chairman of the board, age 67,

joined the Company in February 2005 as Chairman. He also

serves as Chairman of the AML Oversight Committee of the

Company.

Tan Sri Dr Chen Lip Keong (“TSCLK”), age 67, an

Executive Director of the Company, is the founder,

controlling shareholder, CEO and a member of the

Remuneration Committee.

Another 2 executive directors and 3 independent non-

executive directors.

Latest results highlights (2014)

Latest results highlights (2014)

In 2014, the company generated US$405mn revenue, up

17%YoY. GGR was US$381mn, and non-gaming revenue

was US$23mn.

In GGR, VIP was US$188mn, up 49%YoY. Mass was

US$193mn, up 51%YoY.

The EBITDA was US$176mn, up 2%YoY. The EBITDA

margin was 43%, down 7% compared to 2013.

FCF was US$61mn till the end of 2013, down 51%YoY.

Net D/E was -28%, deteriorating by 14%.

Total chips buy-in for mass table game was up 16%YoY to

US$465mn. The win rate was up 1%.

Slot gaming rolling was up 8%YoY to US$1,186mn. Win

rate was down 1%.

VIP rolling was up 35%YoY to US$6,185mn. Win rate was

flat.

Fig 1 Revenue has been growing at 28% CAGR Fig 2 FY14 revenue breakdown (US$405m)

Source: Company data, April 2015 Source: Company data, April 2015

VIP - SEA26%

VIP - Macau5%

VIP - Local16%Mass

27%

Slots21%

Non-gaming5%

*VIP breakdown is approximated by rolling


30 April 2015 81

The growth proposition

The value propositon (fully diluted basis)

Exclusive gaming business operating rights in Phnom Penh,

the most popular city for tourists in Cambodia.

Cambodia continuously attracts more tourists from China,

Vietnam and other East Asia countries.

Naga2 will be finished in late 2016 and open by 1H2017,

which will double the gaming and hospitality capacity.

FY15 and 16 EV/EBITDA 13.1x and 11.4x, based on

Bloomberg consensus.

FY15 and 16 PER 18.3x and 16.5x, based on Bloomberg

consensus.

The business model

The main risks

Operates a 713-room casino resort in Phnom Penh with

exclusive license within 200km radius of the capital.

VIP Business consists of Incentive Junkets which is similar

with Macau's revenue sharing model; commission Junkets,

and direct VIP players. Commission rate is equivalent to

2.0% of total rolling chips based on 70% GGR sharing

model. Players with chips buying in above US$15,000 can

qualify as VIP.

Gaming tax is fixed dollar amount per month, equivalent to

just below 2% of FY14 GGR, Naga is exempted from

corporate tax rate.

The tax and gaming obligation are decided purely by the

government, which may be challenged post 2018 election.

Government policy risk on travel restrictions.

Strengths

Weaknesses

The company holds a 70-year gaming license until 2065

and 40 year exclusivity license within 200km radius of

Phnom Penh until 2015.

Experienced team running the property from global gaming

giants.

Gaming is a cyclical business with high fixed operating

costs.

Opportunities

Threats

Naga2 is under construction and expected to be finished in

late 2016 and open in 1H2017. It will feature over 1,000

rooms, 38 luxury VIP suites, up to 18,738 sqm of retail

space, MICE/theatre facilities with a 2,000 seating capacity

and additional gaming space of 300 tables, as well as 500

slots.

The PERC Project located in Vladivostok, Russia, will

provide the company valuable global diversification. The

project is currently at development and investment stage. It

is not expected to be operational before 2018. The planned

room capacity will be around 1,000, with 100 tables and 50

slots.

Regional competition from capacity build out in Macau,

Philippines or even in Vietnam.


30 April 2015 82

NagaWorld has little competition domestically. This was evident with a packed mass gaming floor

even during the day with minimum bets of at least US$40 (often $100), while Bokor barely had

anyone playing at its $10 tables.

Fig 3 NagaWorld is situated at the center of Phnom Penh

Fig 4 And is the only IR around the capital that is up to regional standards. Min bet US$40


Fig 5 We also visited the nearest casino: Thansur Bokor Highland resort (3.5hr drive from Phnom Penh)

Fig 6 Wasn’t impressed. Very few players, min bet only US$10



30 April 2015 83

Fig 7 NagaCorp (3918.HK, not rated) Financials (US$ million unless per share items)

Interim Results 1H13 2H13 1H14 2H14 Profit & Loss 2011 2012 2013 2014

Revenue m 152 193 191 213 Revenue m 224 279 345 405 Gross Profit m 112 137 133 140 Gross Profit m 164 203 249 273 Cost of Goods Sold m -40 -56 -58 -73 Cost of Goods Sold m -60 -76 -96 -132 EBITDA m 77 94 86 87 EBITDA m 110 139 173 176 Depreciation m -12 -14 -16 -18 Depreciation m -16 -21 -27 -34 EBIT m 66 80 71 69 EBIT m 94 119 146 139 Forex Gains / Losses m 0 -1 0 0 Forex Gains / Losses m 0 0 -1 -1 Other Pre-Tax Income m 0 1 0 3 Other Pre-Tax Income m 2 -1 0 4 Pre-Tax Profit m 65 80 71 71 Pre-Tax Profit m 96 118 145 142 Tax Expense m -3 -3 -3 -3 Tax Expense m -4 -4 -5 -6 Net Profit m 63 77 68 68 Net Profit m 92 113 140 136 Minority Interests m 0 0 0 0 Minority Interests m 0 0 0 0 Reported Earnings m 63 77 68 68 Reported Earnings m 92 113 140 136 EPS (rep) 0.03 0.03 0.03 0.03 EPS (rep) 0.04 0.05 0.06 0.06 EPS (adj) 0.03 0.03 0.03 0.03 EPS (adj) 0.04 0.05 0.06 0.06 EPS Growth yoy (adj) % 13.9 17.2 3.1 -12 EPS Growth (adj) % 108.5 22.9 15.7 -5.1 PE (adj) x 31.2 25.4 20.5 21.1 EBITDA Margin % 50.9 49.9 47.1 42.8 EBIT Margin % 43.3 41.4 36.9 32.2 Revenue Growth % 14.7 31.9 26 10.3 EBIT Growth % 20.7 25.8 7.5 -14.3

Profit and Loss Ratios 2011 2012 2013 2014 Cash flow Analysis 2011 2012 2013 2014

Revenue Growth % 48.7 24.6 23.7 17.2 Net Income m 92 113 140 136 EBITDA Growth % 79.1 26.1 24.3 0.1 Depreciation & Amortization m 16 20 26 34 EBIT Growth % 98.6 25.8 23.2 -4.8 Other Non-Cash Adjustments m 1 1 1 1 Gross Profit Margin % 73.2 72.9 72.1 67.4 Changes in Non-Cash Capital m 6 10 12 -12 EBITDA Margin % 49.2 49.8 50.1 42.8 Operating Cash flow m 115 144 181 159 EBIT Margin % 42.2 42.6 42.4 34.4 Capex m -45 -72 -59 -97 Net Profit Margin % 41.1 40.6 40.7 33.7 Asset Sales m 0 0 0 0 Payout Ratio % 70 70.7 70 70 Other m -14 0 0 -25 EV/EBITDA x 24.2 19.2 15.4 15.1 Investing Cash flow m -60 -72 -59 -122 EV/EBIT x 28.4 22.4 18.3 19.2 Dividend (Ordinary) m -80 -107 -113 -123 Balance Sheet Ratios Equity Raised m 0 0 155 9 ROE % 27.8 30 28 22.2 Debt Movements m 0 0 0 0 ROA % 26.5 28.3 26.3 20.9 Financing Cash flow m 1062 -59 -126 1471 ROIC % 26.5 29.5 27.8 21.9 Net Debt/Equity x -18.4 -18.2 -42 -32.6 Net Chg in Cash/Debt m -48 -64 58 -111 Price/Book % 7.6 6.6 4.4 4.3 Free Cash flow m 6 8 179 -74

Balance Sheet 2011 2012 2013 2014

Cash m 65 73 252 178 Receivables m 13 7 9 13 Inventories m 1 1 1 1 Investments m 0 0 0 26 Fixed Assets m 188 238 271 338 Intangibles m Other Assets m 105 109 107 105 Total Assets m 372 428 640 661 Payables m 1 1 2 2 Short Term Debt m 0 0 0 0 Long Term Debt m 0 0 0 0 Provisions m Other Liabilities m 18 25 38 34 Total Liabilities m 19 26 40 35 Shareholders' Funds m 162 162 316 316 Minority Interests m 0 0 0 0 Other m 191 240 283 309 Total S/H Equity m 352 402 600 626 Total Liab & S/H Funds m 372 428 640 661

Source: Company data, April 2015


30 April 2015 84

Important disclosures:

Recommendation definitions

Macquarie - Australia/New Zealand Outperform – return >3% in excess of benchmark return Neutral – return within 3% of benchmark return Underperform – return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield

Macquarie – Asia/Europe Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10%

Macquarie First South - South Africa Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10%

Macquarie - Canada

Outperform – return >5% in excess of benchmark return Neutral – return within 5% of benchmark return Underperform – return >5% below benchmark return

Macquarie - USA Outperform (Buy) – return >5% in excess of Russell 3000 index return Neutral (Hold) – return within 5% of Russell 3000 index return Underperform (Sell)– return >5% below Russell 3000 index return

Volatility index definition*

This is calculated from the volatility of historical price movements. Very high–highest risk – Stock should be

expected to move up or down 60–100% in a year – investors should be aware this stock is highly speculative. High – stock should be expected to move up or down at least 40–60% in a year – investors should be aware this stock could be speculative. Medium – stock should be expected to move up or down at least 30–40% in a year. Low–medium – stock should be expected to move up or down at least 25–30% in a year. Low – stock should be expected to move up or down at least 15–25% in a year. * Applicable to Asia/Australian/NZ/Canada stocks only

Recommendations – 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations

Financial definitions

All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards).

Recommendation proportions – For quarter ending 31 March 2015

AU/NZ Asia RSA USA CA EUR Outperform 48.99% 59.51% 49.30% 43.79% 59.59% 52.20% (for US coverage by MCUSA, 7.42% of stocks followed are investment banking clients)

Neutral 34.12% 26.62% 35.21% 50.29% 34.93% 31.32% (for US coverage by MCUSA, 5.68% of stocks followed are investment banking clients)

Underperform 16.89% 13.87% 15.49% 5.93% 5.48% 16.48% (for US coverage by MCUSA, 0.87% of stocks followed are investment banking clients)

Company-specific disclosures: Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/disclosures.

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Asia Research Head of Equity Research

John O’Connell (Global – Head) (612) 8232 7544

Peter Redhead (Asia – Head) (852) 3922 4836

Automobiles/Auto Parts

Janet Lewis (China) (852) 3922 5417

Zhixuan Lin (China) (8621) 2412 9006

Amit Mishra (India) (9122) 6720 4084

Takuo Katayama (Japan) (813) 3512 7856

James Hong (Korea) (822) 3705 8661

Banks and Non-Bank Financials

Ismael Pili (Asia, Hong Kong, China) (852) 3922 4774

Jian Li (China, Hong Kong) (852) 3922 3579

Matthew Smith (China) (8621) 2412 9022

Suresh Ganapathy (India) (9122) 6720 4078

Nicolaos Oentung (Indonesia) (6221) 2598 8366

Alastair Macdonald (Japan) (813) 3512 7476

Chan Hwang (Korea) (822) 3705 8643

Gilbert Lopez (Philippines) (632) 857 0892

Thomas Stoegner (Singapore) (65) 6601 0854

Dexter Hsu (Taiwan) (8862) 2734 7530

Passakorn Linmaneechote (Thailand) (662) 694 7728

Conglomerates


Consumer and Gaming

Linda Huang (China, Hong Kong) (852) 3922 4068

Jamie Zhou (China, Hong Kong) (852) 3922 1147

Elaine Lai (Hong Kong) (852) 3922 4749

Zibo Chen (Hong Kong) (852) 3922 1130

Amit Mishra (India) (9122) 6720 4084

Lyall Taylor (Indonesia) (6221) 2598 8489

Hendy Soegiarto (Indonesia) (6221) 2598 8369

Toby Williams (Japan) (813) 3512 7392

HongSuk Na (Korea) (822) 3705 8678

Karisa Magpayo (Philippines) (632) 857 0899

Somesh Agarwal (Singapore) (65) 6601 0840

Best Waiyanont (Thailand) (662) 694 7993

Emerging Leaders

Jake Lynch (China, Asia) (8621) 2412 9007

Kwang Cho (Korea) (822) 3705 4953

Industrials

Janet Lewis (Asia) (852) 3922 5417

Patrick Dai (China) (8621) 2412 9082

Saiyi He (China) (852) 3922 3585

Inderjeetsingh Bhatia (India) (9122) 6720 4087

Andy Lesmana (Indonesia) (6221) 2598 8398

Kenjin Hotta (Japan) (813) 3512 7871

James Hong (Korea) (822) 3705 8661

Somesh Agarwal (Singapore) (65) 6601 0840

David Gambrill (Thailand) (662) 694 7753

Insurance

Scott Russell (Asia, Japan) (852) 3922 3567


Software and Internet

David Gibson (Asia) (813) 3512 7880

Wendy Huang (Hong Kong) (852) 3922 3378

Alice Yang (China, Hong Kong) (852) 3922 1266

Hillman Chan (China, Hong Kong) (852) 3922 3716

Nitin Mohta (India) (9122) 6720 4090

Nathan Ramler (Japan) (813) 3512 7875

Prem Jearajasingam (Malaysia) (603) 2059 8989

Oil, Gas and Petrochemicals

James Hubbard (Asia) (852) 3922 1226

Aditya Suresh (Hong Kong, China) (852) 3922 1265

Abhishek Agarwal (India) (9122) 6720 4079

Polina Diyachkina (Japan) (813) 3512 7886

Anna Park (Korea) (822) 3705 8669

Trevor Buchinski (Thailand) (662) 694 7829

Pharmaceuticals and Healthcare

John Yung (Hong Kong, China) (852) 3922 1132

Abhishek Singhal (India) (9122) 6720 4086

Property

Tuck Yin Soong (Asia, Singapore) (65) 6601 0838

David Ng (China, Hong Kong) (852) 3922 1291

Raymond Liu (China, Hong Kong) (852) 3922 3629

Kai Tan (China) (852) 3922 3720

Abhishek Bhandari (India) (9122) 6720 4088

Andy Lesmana (Indonesia) (6221) 2598 8398

William Montgomery (Japan) (813) 3512 7864

RJ Aguirre (Philippines) (632) 857 0890

Corinne Jian (Taiwan) (8862) 2734 7522

David Liao (Taiwan) (8862) 2734 7518

Patti Tomaitrichitr (Thailand) (662) 694 7727

Resources / Metals and Mining

Matty Zhao (Asia, China) (852) 3922 1293

Hefei Deng (China) (852) 3922 1136

Rakesh Arora (India) (9122) 6720 4093

Stanley Liong (Indonesia) (6221) 2598 8381

Polina Diyachkina (Japan) (813) 3512 7886

Anna Park (Korea) (822) 3705 8669

David Liao (Taiwan) (8862) 2734 7518

Technology

Jeffrey Su (Asia, Taiwan) (8862) 2734 7512

Nitin Mohta (India) (9122) 6720 4090

Claudio Aritomi (Japan) (813) 3512 7858

Damian Thong (Japan) (813) 3512 7877

David Gibson (Japan) (813) 3512 7880

George Chang (Japan) (813) 3512 7854

Daniel Kim (Korea) (822) 3705 8641

Soyun Shin (Korea) (822) 3705 8659

Ellen Tseng (Taiwan) (8862) 2734 7524

Tammy Lai (Taiwan) (8862) 2734 7525

Telecoms

Nathan Ramler (Asia, Japan) (813) 3512 7875

Danny Chu (852) 3922 4762 (China, Hong Kong, Taiwan)

David Lee (Korea) (822) 3705 8686

Prem Jearajasingam (Malaysia, Singapore) (603) 2059 8989

Transport & Infrastructure

Janet Lewis (Asia) (852) 3922 5417

Andrew Lee (Asia) (852) 3922 1167

Azita Nazrene (ASEAN) (603) 2059 8980

Corinne Jian (Taiwan) (8862) 2734 7522

Utilities & Renewables

Gary Chiu (Asia) (852) 3922 1435

Alan Hon (Hong Kong) (852) 3922 3589

Inderjeetsingh Bhatia (India) (9122) 6720 4087

Prem Jearajasingam (Malaysia) (603) 2059 8989

Karisa Magpayo (Philippines) (632) 857 0899

Commodities

Colin Hamilton (Global) (4420) 3037 4061

Jim Lennon (4420) 3037 4271

Matthew Turner (4420) 3037 4340

Graeme Train (8621) 2412 9035

Angela Bi (8621) 2412 9086

Rakesh Arora (9122) 6720 4093

Economics

Peter Eadon-Clarke (Asia, Japan) (813) 3512 7850

Richard Gibbs (Australia) (612) 8232 3935

PK Basu (ASEAN) (603) 2059 8993

Larry Hu (China, Hong Kong) (852) 3922 3778

Tanvee Gupta Jain (India) (9122) 6720 4355

Quantitative / CPG

Gurvinder Brar (Global) (4420) 3037 4036

Woei Chan (Asia) (852) 3922 1421

Anthony Ng (Asia) (852) 3922 1561

Jason Zhang (Asia) (852) 3922 1168

Special Situations

Matthew Hook (Asia) (852) 3922 3743

Strategy/Country

Viktor Shvets (Asia) (852) 3922 3883

Chetan Seth (Asia) (852) 3922 4769

Joshua van Lin (Asia Micro) (852) 3922 1425

Peter Eadon-Clarke (Japan) (813) 3512 7850

David Ng (China, Hong Kong) (852) 3922 1291

Erwin Sanft (China, Hong Kong) (852) 3922 1516

Rakesh Arora (India) (9122) 6720 4093

Nicolaos Oentung (Indonesia) (6121) 2598 8366


PK Basu (Malaysia) (603) 2059 8993


Conrad Werner (Singapore) (65) 6601 0182

David Gambrill (Thailand) (662) 694 7753 Find our research at Macquarie: www.macquarie.com.au/research Thomson: www.thomson.com/financial Reuters: www.knowledge.reuters.com Bloomberg: MAC GO Factset: http://www.factset.com/home.aspx CapitalIQ www.capitaliq.com Email [email protected] for access

Asia Sales Regional Heads of Sales

Miki Edelman (Asia) (813) 3512 7857

Jeffrey Shiu (China & Hong Kong) (852) 3922 2061

Thomas Renz (Geneva) (41) 22 818 7712

Bharat Rawla (India) (9122) 6720 4100

Riaz Hyder (Indonesia) (6221) 2598 8486

Mark Chadwick (Japan) (813) 3512 7827

John Jay Lee (Korea) (822) 3705 9988

Nik Hadi (Malaysia) (603) 2059 8888

Eric Roles (New York) (1 212) 231 2559

Gino C Rojas (Philippines) (632) 857 0861

Regional Heads of Sales cont’d

Ruben Boopalan (Singapore) (603) 2059 8888

Paul Colaco (San Francisco) (1 415) 762 5003

Erica Wang (Taiwan) (8862) 2734 7586

Angus Kent (Thailand) (662) 694 7601

Ben Musgrave (UK/Europe) (44) 20 3037 4882

Julien Roux (UK/Europe) (44) 20 3037 4867

Sales Trading

Adam Zaki (Asia) (852) 3922 2002

Stanley Dunda (Indonesia) (6221) 515 1555

Sales Trading cont’d

Suhaida Samsudin (Malaysia) (603) 2059 8888

Michael Santos (Philippines) (632) 857 0813

Kenneth Cheung (Singapore) (65) 6601 0288

Chris Reale (New York) (1 212) 231 2555

Marc Rosa (New York) (1 212) 231 2555

Isaac Huang (Taiwan) (8862) 2734 7582

Dominic Shore (Thailand) (662) 694 7707

Mike Keen (UK/Europe) (44) 20 3037 4905

AsiaGaming300415e210559

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